Marketwatch (21/01) — The Federal Reserve is on track to trim its bond-buying program for the second time in six weeks as a lackluster December jobs report failed to diminish the central bank’s expectations for solid U.S. economic growth this year, according to interviews with officials and their public comments.
A reduction in the program to $65 billion a month from the current $75 billion could be announced at the end of the Jan. 28-29 meeting, which would be the last meeting for outgoing Chairman Ben Bernanke.
The Fed has been buying Treasurys and mortgage bonds in an effort to drive down long-term interest rates and spur spending, hiring and investment. Last year the Fed spent $85 billion a month buying bonds. Bernanke suggested at a December news conference that officials were inclined to continue cutting purchases in $10 billion increments at subsequent meetings as long as the economy keeps strengthening.
“We’re likely to continue on a path of gradual, measured reductions in the pace of purchases, assuming the economy tracks as we expect it to,” San Francisco Fed President John Williams said in an interview early in the month.
Bond buying is one of two prongs in the Fed’s strategy to boost the economy. The other is low interest rates, and Fed officials are once again debating how best to describe their plans for when they eventually begin raising short-term rates.
In December, the Fed said rates would remain near zero “well past” the time when the unemployment rate falls to 6.5%. The Fed is in no hurry to raise interest rates. But because officials have tied their plans to movements in the jobless rate, they see a need to better explain their plans as the jobless rate drops