US Federal Reserve dials back stimulus programme

business July 31, 2014 00:00

WASHINGTON (DPA) - The Federal Reserve is cutting its monthly purchases of Government-linked bonds to US$25 billion, down from the $35 billion level set at the central bank's last meeting in June.

The latest cut continues a policy launched in January of regularly trimming the stimulus programme as it works to end its so-called quantitative easing by the end of the year. Until this year, the Fed had been buying $85 billion of bonds every month.
The US central bank noted economic activity had rebounded in the second quarter and labour conditions improved, even as “there remains a significant under-utilization of labour resources.” It also said household and business spending was improving, but recovery in the housing sector remained slow.
“In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions since the inception of the current asset purchase programme, the committee decided to make a further measured reduction in the pace of its asset purchases,” the Fed said in a statement.
The US economy grew at an annual rate of 4 per cent in the second quarter, the Bureau of Economic Analysis said earlier Wednesday. The figure marks a turnaround after gross domestic product registered its first decline in three years in the previous quarter.
The Fed left its benchmark interest rate unchanged at the unprecedented, near-zero level in place since December 2008.
The Fed started the current round of quantitative easing in September 2012 at $85 billion a month — an annual pace of $1 trillion stimulus to the nearly $17 trillion US economy.
By denying access to safe-haven bonds, the policy was meant to push investment into the private economy at a time when the Fed felt it had to act to spur US growth and fend-off the spectre of deflation.
In the process, volatile investment flows spilled into developing economies with higher growth rates.