Fed unveils another cut in its bond purchases

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The US Federal Reserve yesterday announced a further $10 bn (£6bn) reduction in its monthly bond purchases as it stuck to a plan to wind down the extraordinary stimulus despite recent turmoil in emerging markets.

Fed chairman Ben Bernanke, who hands the central bank’s reins to vice chair Janet Yellen tomorrow, also adjourned his last policy-setting meeting without making any changes to the US central bank’s other main policy plank: its longer-term plan to keep interest rates low for some time to come.

The Fed acknowledged that “economic activity picked up in recent quarters”, in a statement after the two-day meeting, a nod to the broader US economic strength that prompted it to decide last month to begin reducing the asset purchase plan. Starting in February, the Fed will buy $65bn in bonds per month, down from $75bn now. It shaved its purchases of US Treasuries and mortgage bonds equally.

The decision received unanimous backing from Fed policymakers.

Overall signs of improvement in the US economy suggested they would stay on track to cut the purchases in line with what Bernanke predicted would be “measured” steps until the programme was shelved later in the year.

A sell-off in emerging market currencies and stocks in recent days, and disappointing US job growth in December, did not deter Fed officials.

The meeting is Bernanke’s last before Janet Yellen moves into the top spot.