First step to recovery: US Federal Reserve announces $10bn reduction in its stimulus measures

America's central bank acts after two year budget deal was recently agreed in Congress - removing the threat of another government shutdown in the near future

New York, London

After hesitating for months, the US Federal Reserve has taken its first step in the process of weaning the world's largest economy off the extraordinary stimulus measures put in place to help it survive the financial crisis and recover from the recent recession, announcing a $10bn reduction in its bond buying programme.

From January, America's central bank will purchase $75bn worth of government- and mortgage-related bonds every month, down from the current pace of $85bn, reducing the scope of its third round of asset purchases as the US economy shows signs of recovery.

American firms added 203,000 jobs over November, while the unemployment rate dropped to 7 per cent. The economic outlook has also been helped by the two year budget deal recently agreed by Democrats and Republicans in Congress. The deal staves off the threat of another government shutdown in the near future.

Although negatives remain - part of the drop in joblessness has been down to people exiting the labour market, inflation is lodged well below the Fed's target, and Washington could yet damage the economy when the two parties debate the debt-ceiling next year - the central bank said that its decision was motivated by the “the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions.”

At the same time, the Fed's policy-setting Open Market Committee said it expected interest rates to remain near to zero “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal.” The Fed's preferred index for consumer inflation showed a reading of just 0.7 per cent, or less than half the Committee's, for the twelve months to the end of October.

The Fed's decision, which triggered a rally on US markets, followed a sudden fall in UK unemployment to 7.4 per cent that caught financial markets off guard, sending the pound up more than a cent against the dollar and the nation's benchmark cost of borrowing for 10 years up to 2.91 per cent, the highest since September.

Minutes of the Bank of England's Monetary Policy Committee expressed concern over the rising pound, which is 9 per cent higher than its March trough. The minutes warned: “Any further substantial appreciation of sterling would pose additional  risks to the balance of demand growth and to the recovery.”

The sharp fall in unemployment also increases the chances that the jobless rate will hit the Bank's 7 per cent threshold for considering interest rate rises much earlier than expected. Last month the Bank forecast 7.6 per cent unemployment in the current quarter, well above the current level, and predicted that it would not hit the 7 per cent mark until the second quarter of 2015.

The Bank was also expecting a sharp recovery in productivity among existing workers to keep unemployment higher. The figures suggest less slack in the economy, which could lead to wage pressure re-emerging more quickly.

people And here is why...
peopleStella McCartney apologises over controversial Instagram picture
Arts and Entertainment
Hayley Williams performs with Paramore in New York
musicParamore singer says 'Steal Your Girl' is itself stolen from a New Found Glory hit
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?