Fed pulls back on US stimulus policy
The US Federal Reserve last night announced plans to start weaning America off quantitative easing (QE) in a move that signals the central bank's confidence in the stability of the US economy.
The central bank said that it will pare its $85bn (€62.1bn) a month bond buying scheme back to $75bn next month, and continue ratcheting it down in "measured steps" if the US economic recovery remains on course.
The scheme was put in place to help boost the US recovery in the wake of the financial crisis, by effectively pumping extra money into the economy.
Withdrawing the artificial stimulus will act as a drag on growth, but it is also likely to be welcomed by critics of QE who fear that America was fuelling asset price-bubbles and storing up trouble for the future.
It is also likely to put pressure on other central banks around the world, including the UK, to start reducing their own QE habits.
The decision follows many months of speculation over when the Fed would start weaning America off the scheme.
US markets soared on the initial tapering decision, although they fell back a little after Mr Bernanke's press conference, in which he stressed that the central bank will reintroduce QE if needed.
The Dow Jones Industrial Average jumped more than 200 points after the Fed's initial announcement, while the Standard & Poor's 500 Index rose 19 points to 1,800.
The Federal Open Market Committee said yesterday that the jobs situation had finally improved sufficiently to start slowing down the printing presses.
"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions, the committee decided to modestly reduce the pace of its asset purchases."
Earlier this month, it emerged that America's unemployment rate had dropped to 7pc in November, its lowest level in five years. (© Daily Telegraph, London)