Beginning of the end expected for US stimulus

Now Reading:

Beginning of the end expected for US stimulus

Text size Aa Aa

The US Federal Reserve is today expected to take the first tentative steps in winding down its stimulus measures aimed at getting the world’s biggest economy growing again.

It has been pumping money into the US economy by printing cash and using it to buy 85 billion dollars worth of government bonds and mortgage-backed securities each month.

Economists think the central bank’s policymakers are likely to cut that bond buying by 10 billion dollars a month, but it could be more or less.

The Fed is able to consider this because US economic growth is starting to stabilise. GDP rose at a 2.5 percent annual rate between April and June.

Job creation is key to the Fed’s stimulus, which also includes super-low borrowing costs. It has pledged to keep interest rates low until the labour market shows significant and sustained growth.

Fed Chairman Ben Bernanke at a news conference after the Federal Open Market Committee is likely to seek to reassure investors that an actual rise in interest rates is still distant.

Still lenders have been increasing the cost of borrowing on things like home mortgages and car loans just at the prospect of the stimulus ending.

Those low rates have been driving spending in the US. The fear is if the Fed moves too soon it could choke off the fragile recovery.