The Federal Open Market Committee (FOMC) at the conclusion of its policy-setting meeting said due to progress toward maximum employment and improved labor market conditions it has decided to "modestly reduce the pace of its asset purchases." Starting in January, the Committee will scale back its monthly purchases of agency mortgage-backed securities from $40 billion per month to $35 billion per month and will scale back its holding of longer-term Treasury securities from $45 billion per month to $40 billion per month.
The U.S. dollar index rose sharply on the news, which resulted in stepped-up pressure on grain and soy complex futures.
"The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction," states the FOMC. "The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate."
Full statement regarding scale back of purchases.
The FOMC said it will continue to monitor the economy closely and will continue its reduced pace of mortgage and Treasury purchases, as well as employ other policy tools as needed until the outlook for the labor market has improved substantially. It adds, "If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases."
The FOMC also reaffirmed its expectations the current exceptionally low target range for the federal funds rate of 0% to 0.25% will be appropriate "at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Esther L. George; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Eric S. Rosengren, who believes that, with the unemployment rate still elevated and the inflation rate well below the federal funds rate target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate.