Newspaper article International New York Times

Fed Reduces Bond Buying by Another $10 Billion ; Yellen Curtails Program as Expected but Adjusts Interest Rate Guidance

Newspaper article International New York Times

Fed Reduces Bond Buying by Another $10 Billion ; Yellen Curtails Program as Expected but Adjusts Interest Rate Guidance

Article excerpt

The Federal Reserve continued to curtail its economic stimulus, but it adjusted its guidance on interest rates.

The United States Federal Reserve has further curtailed its economic stimulus campaign, even as it says the effort will continue for the foreseeable future, given the enduring consequences of the recession.

The Fed, as expected, announced on Wednesday that it would reduce its monthly purchases of Treasury and mortgage-backed securities by $10 billion, to $55 billion, because of its confidence that the four- year recovery was finally becoming self-sustaining.

The Fed also signaled its intention to keep short-term interest rates near zero after the unemployment rate falls below 6.5 percent. Investors, however, drew the conclusion that the central bank might begin to raise short-term interest rates, which it has held near zero since December 2008, well before the end of 2015.

But Janet L. Yellen, in her first news conference as the Fed's new chairwoman, sought to offset that optimism, saying the committee intended to raise short-term rates only gradually, because the economic environment remained weak. Importantly, she said, the Fed expects to conclude the process with rates still below the historically normal level of 4 percent.

Noting that growth had repeatedly disappointed expectations in recent years, Ms. Yellen said some Fed officials had concluded "that the potential growth rate of the economy may be lower at least for a time." She cited the lingering effects of the recession, including unpaid debts and difficulties in obtaining loans. It was the first time the Fed officially predicted that the economy might not recover completely.

The Fed is taking two different tacks in its approach to its stimulus campaign. The central bank's retreat from its bond-buying campaign has been clear and consistent, and it remains on track to end the current round of bond buying this fall. But its plans for interest rates only created confusion on Wednesday. …

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