This content is not available in your region

Stock markets soar after the Fed says it will cut its stimulus programme

Stock markets soar after the Fed says it will cut its stimulus programme
Text size Aa Aa

The Federal Reserve has embarked on the risky task of ending its stimulus programme to boost the still weak US economy.

It sugar-coated the decision to start winding down its crisis-era stimulus with a promise to keep record low interest rates in place even longer than previously signalled.

Fed Chairman Ben Bernanke said the US central bank’s decision to slow its bond purchases is a sign of progress and he expects policymakers to take “similar moderate steps” throughout next year if the economy shows continued improvement.

Bernanke made the comments at a news conference after the Fed announced it would reduce its monthly bond purchases by $10 billion (7.3 billion euros) in January.

“Today’s policy actions reflect committee assesment that the economy is continuing to make progress, but that it also has much further to travel before conditions can be judged normal,” Bernanke said.

However he cautioned that the Fed’s further reductions in the purchases remain dependent on future economic data.

US stock markets rose sharply after the Fed’s announcement. Both S&P 500 and Dow Jones industrials average closed at all-time highs. There were also big gains in Tokyo and some other parts of Asia. European stocks also rallied on Thursday.

In what amounts to the beginning of the end of its unprecedented support for the US economy, the central bank said it would reduce its monthly asset purchases to total $75 billion (54 billion euros) a month.

It trimmed equally from mortgage and Treasury bonds, $5 billion from each.

This third and latest round of quantitative easing, or QE, was launched 15 months ago to kick-start hiring and growth in an economy recovering only slowly from the recession. Its first QE programme was launched during the 2008 financial crisis.

Commenting on its role in troubled times, Bernanke said: “The Federal Reserve has rediscovered its roots, in essence that the Fed was created to stabilise the financial system in times of panic and we did that.”