Federal Reserve taper agreed after job growth
The U.S central bank has announced that a reduction in the Federal Reserve’s bond buying programme has been agreed. The stimulus is due to be decreased in “measured steps”, equating to approximately $10bn (£6.1bn) a month, in order to prevent market disturbance.
One of the main reasons this taper has finally been agreed is the progress made by U.S job growth in recent months.
Speculation of the Federal Reserve’s taper in the summer last year caused a huge amount of instability in the global market but as the situation seems to have settled the quantitative easing is due to slowly begin.
The first move by the Federal Reserve was to cut purchases of mortgage bonds and US Treasury bonds from $85bn a month to $75bn a month in December 2013. The bank is expected to continue making $10bn reductions following incremental policy meetings throughout the year, as long as U.S economic conditions show progressive improvement.
Plans to keep the short term interest rates low attempt to demonstrate the bank’s continued support of the domestic economy for the duration of the taper. This means interest rates won’t change even after U.S unemployment falls below the 6.5% threshold, but is dependent on inflation rates remaining even.