In response to its belief that fiscal policy is restraining economic growth, the Federal Open Market Committee (FOMC) today announced it is further tapering its monthly asset-purchasing stimulus by $10 billion a month beginning in February. Chairman Ben Bernake led his last FOMC meeting to continue unwinding a program that expanded the U.S. central bank's balance sheet to more than $4 trillion.
"Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month," states the FOMC. "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. 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."
Saying it will continue to closely monitor incoming economic and financial developments, the Committee said its decisions about further tapering will remain contingent on the outlook for the labor market, "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 remain in place 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% loner-run goal and longer-term inflation expectations continue to be well anchored.