Thursday, January 30, 2014

What the Fed Just Did

Federal Reserve chair Ben Bernanke's term officially ends tomorrow, but yesterday he made one final move that will resonate in the markets. The Fed announced yesterday that it would slice another $10 billion from its monthly asset purchases, continuing the policy known as the taper. The Fed's bond buying dropped from $85 billion to $75 billion in January, and it will drop further to $65 billion next month.

The Fed cited the increasing stability of the American economy in justifying its decision, although it reiterated that interest rates would stay near zero until unemployment dropped "well past" 6.5 percent. That number is now at 6.7 percent, and has been falling in recent months.

These decisions can always change under the leadership of Janet Yellen, who is scheduled to officially take over as Fed chair on Saturday. But all indications are that Yellen, who has been a protege of Bernanke's, is likely to continue his policies.

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