Fed to cut back on economic stimulus in Jan. - KTTC Rochester, Austin, Mason City News, Weather and Sports

Fed to cut back on economic stimulus in Jan.

Posted:

WASHINGTON (CNBC) -- The U.S. economy is healthy enough to begin weaning it off the steady flow of stimulus the Federal Reserve has been supplying since the Great Recession, the central bank said Wednesday.

In a move that few expected, the Fed said it would be cutting its historic $85 billion a month program to boost the economy by about $10 billion per month beginning in January.

"Information received since the Federal Open Market Committee met in October indicates that economic activity is expanding at a moderate pace," the Fed said in a statement released at the end of a two-day meeting to set policy.

The Fed also said the labor market has improved further, household spending and business investment advanced and inflation expectations are stable.

The upbeat tone of the statement boosted stocks. The Dow Jones industrial average jumped 150 points shortly after the news.

"They finally pulled a Band-aid off that they've been tugging at for a long time. The initial reaction is that tightening will be bad for stocks, but upon further reflection investors realize that to some extent tightening represents a view that the economy is stronger and can survive higher rates," Rick Meckler, president of hedge fund Libertyview Capital Management told Reuters.

To cushion the impact on financial markets, the Fed strengthened its commitment to record-low short-term rates. It says it plans to hold its key short-term rate near zero "well past" the time when unemployment falls below 6.5 percent.

In his last new conference as Fed chief, Bernanke said the Fed would trim the stimulus program more at future meetings, depending on economic conditions. Vice chair Janet Yellen is the presumed successor when Bernanke steps down in January.

Bernanke warned, however, that the economy remains in need of the Fed's aid.

"Today's policy actions reflect the committee's assessment that the economy is continuing to make progress but that it also has much farther to travel before conditions can be judged normal," he said. "Notably despite significant fiscal headwinds, the economy has been expanding at a moderate pace and we expect that growth will pick up somewhat in the coming quarters helped by highly accommodative monetary policy and waning fiscal drag."

The Fed's action comes after encouraging reports that show the economy is accelerating.

Hiring has been robust for four straight months. Unemployment is at a five-year low of 7 percent. Factory output is up. Consumers are spending more at retailers. Auto sales haven't been better since the recession ended 4½ years ago.

What's more, the stock market is near all-time highs. Inflation remains below the Fed's target rate. And the House has passed a budget plan that seems likely to avert another government shutdown next year. The Senate is expected to follow suit.

One factor of concern for some members is inflation, which remains historically low. The Fed's optimal rate is 2 percent. For the 12 months ending in October, consumer inflation as measured by the Fed's preferred index is just 0.7 percent, well below its target.

But the Fed sees inflation slowly moving toward its target, according to its most recent economic projections that were released Wednesday. The Fed projects inflation would range between 1.4 percent and 1.6 percent next year and could reach the Fed's target in 2015 at the earliest.

Fed officials still project economic growth of roughly 3 percent next year. But they are slightly more optimistic about unemployment, predicting it could fall as low as 6.3 percent in 2014, down from a low of 6.4 percent forecasted in September.

Nine of the voting members of the FOMC supported the decision to start tapering. Only Boston Fed President Eric Rosengren dissented, noting the elevated unemployment rate and inflation below the 2-percent target.

After nearly eight years, Ben Bernanke is stepping down as Fed chairman early next year. His designated successor, Vice Chair Janet Yellen, faces Senate confirmation this week. Yellen is known to lean dovish in her stance—favoring easy policy like Bernanke—which would likely bode well with markets.

  • Most Popular StoriesMost Popular StoriesMore>>

  • radar alert

    Severe weather could cause headaches across viewing area

    Severe weather could cause headaches across viewing area

    As the saying goes "the heat is on" and it looks like this summer-like spell in our weather is going to hang around all the way through the holiday weekend.

    More >>

    As the saying goes "the heat is on" and it looks like this summer-like spell in our weather is going to hang around all the way through the holiday weekend.

    More >>
  • Family: Shot Indiana student in critical, stable condition

    Family: Shot Indiana student in critical, stable condition

    Saturday, May 26 2018 11:37 AM EDT2018-05-26 15:37:54 GMT
    (Robert Scheer/The Indianapolis Star via AP). Law enforcement officers walk outside Noblesville West Middle School in Noblesville, Ind., after a shooting on Friday, May 25, 2018. A male student opened fire at the suburban Indianapolis school wounding a...(Robert Scheer/The Indianapolis Star via AP). Law enforcement officers walk outside Noblesville West Middle School in Noblesville, Ind., after a shooting on Friday, May 25, 2018. A male student opened fire at the suburban Indianapolis school wounding a...
    Authorities say a female student wounded in an Indianapolis-area middle school shooting is in critical condition and a teacher who was also shot is in good condition.More >>
    Authorities say a female student wounded in an Indianapolis-area middle school shooting is in critical condition and a teacher who was also shot is in good condition.More >>
  • John Marshall baseball player makes remarkable recovery after suffering stroke during game

    John Marshall baseball player makes remarkable recovery after suffering stroke during game

    Baseball is a way of life for John Marshall's Austin Brown. In what feels like the swing of a bat, it's already Senior Night. "It's going to be really tough after the game, just thinking I'm not going to play on this field anymore," says Brown. The soon-to-be graduate is the right fielder for the John Marshall High School Rockets this year. But just one year ago, Austin's senior season seemed out of reach.

    More >>

    Baseball is a way of life for John Marshall's Austin Brown. In what feels like the swing of a bat, it's already Senior Night. "It's going to be really tough after the game, just thinking I'm not going to play on this field anymore," says Brown. The soon-to-be graduate is the right fielder for the John Marshall High School Rockets this year. But just one year ago, Austin's senior season seemed out of reach.

    More >>
  • Rochester band director gets surprise going away concert

    Rochester band director gets surprise going away concert

    John Marshall band director Christopher Jarvis is retiring after 17 years, prompting students and alumni to honor him with a farewell concert.

    More >>

    John Marshall band director Christopher Jarvis is retiring after 17 years, prompting students and alumni to honor him with a farewell concert.

    More >>
  • Minneapolis raises age for buying tobacco to 21

    Minneapolis raises age for buying tobacco to 21

    Supporters of the new law say a majority of adult smokers started the habit before they turned 21, and that the ordinance will discourage young people from smoking.

    More >>

    Supporters of the new law say a majority of adult smokers started the habit before they turned 21, and that the ordinance will discourage young people from smoking.

    More >>
  • Family: Virginia police shooting video raises more questions

    Family: Virginia police shooting video raises more questions

    Saturday, May 26 2018 11:37 AM EDT2018-05-26 15:37:59 GMT
    (Richmond Police via AP). This still image taken from the Richmond, Va., Police body camera shows a police officer pointing his gun at Marcus-David Peters on May 14, 2018, in Richmond, Va. Police Chief Alfred Durham on Friday, May 25, released the vide...(Richmond Police via AP). This still image taken from the Richmond, Va., Police body camera shows a police officer pointing his gun at Marcus-David Peters on May 14, 2018, in Richmond, Va. Police Chief Alfred Durham on Friday, May 25, released the vide...
    The family of a young, black Virginia man who was fatally shot by police while naked and unarmed says the release of body-camera footage has brought more questions than answers.More >>
    The family of a young, black Virginia man who was fatally shot by police while naked and unarmed says the release of body-camera footage has brought more questions than answers.More >>
  • Father, son plead guilty to fraud involving secretive sect

    Father, son plead guilty to fraud involving secretive sect

    Saturday, May 26 2018 11:37 AM EDT2018-05-26 15:37:44 GMT
    (Jennifer Emert/WLOS via AP). Jerry Gross arrives at the federal courthouse in Asheville, NC., Friday, May 25, 2018. He and his son, who belong to a secretive evangelical church in North Carolina called Word of Faith Fellowship Church, pleaded guilty t...(Jennifer Emert/WLOS via AP). Jerry Gross arrives at the federal courthouse in Asheville, NC., Friday, May 25, 2018. He and his son, who belong to a secretive evangelical church in North Carolina called Word of Faith Fellowship Church, pleaded guilty t...
    A father and son have pleaded guilty to wire fraud related to an unemployment benefits scheme that former congregants in a secretive sect say was part of a plan to keep money flowing into the church.More >>
    A father and son have pleaded guilty to wire fraud related to an unemployment benefits scheme that former congregants in a secretive sect say was part of a plan to keep money flowing into the church.More >>
  • Rochester nonprofit looking for help following flood

    Rochester nonprofit looking for help following flood

    A local nonprofit organization that helps homeless families had to discard many donated items as they were damaged in the floods. Family Promise Rochester Day Center's basement was flooded twice in two weeks. The water damage was extensive; dozens of Items were destroyed. 

    More >>

    A local nonprofit organization that helps homeless families had to discard many donated items as they were damaged in the floods. Family Promise Rochester Day Center's basement was flooded twice in two weeks. The water damage was extensive; dozens of Items were destroyed. 

    More >>
Powered by Frankly