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Fed to reduce bond purchases by $10B in January

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The Federal Reserve has decided to reduce its stimulus for the U.S. economy because the job market has shown steady improvement. The Fed will trim its $85 billion a month in bond purchases by $10 billion starting in January.

The Fed said it could further reduce the pace of its purchases next year if the improvement continues. The shift could lead to higher long-term borrowing rates for individuals and businesses.

At the same time, the Fed strengthened its commitment to record-low short-term rates. It said it plans to hold its key short-term rate near zero "well past" the time when unemployment falls below 6.5 percent. Unemployment is now 7 percent.

Investors responded by sending stock prices surging more than 150 points, or nearly 1 percent. The yield on the 10-year Treasury note was little changed.

The Fed's reduction to $75 billion a month in bond purchases is a small but significant step. It means Fed policymakers are ready to ease the extraordinary support they've provided to the economy since the Great Recession began six years ago.

In a policy statement released after its two-day meeting Wednesday, the Fed says it will reduce its purchases of mortgage-bonds and Treasury bonds each by $5 billion. Beginning in January, it will purchase $35 billion in mortgage bonds each month and $40 billion in Treasurys.

The bond purchases have helped keep long-term interest rates low to encourage more borrowing and spending.

The Fed's actions were approved on a 9-1 vote. The only member to object was Eric Rosengren, president of the Federal Reserve Bank of Boston. He called the move premature because unemployment remains high and inflation extremely low.

The Fed's action comes after encouraging reports that show the economy is accelerating.

Hiring has been robust for four straight months. Unemployment is at a five-year low of 7 percent. Factory output is up. Consumers are spending more at retailers. Auto sales haven't been better since the recession ended 4½ years ago.

What's more, the stock market is near all-time highs. Inflation remains below the Fed's target rate. And the House has passed a budget plan that seems likely to avert another government shutdown next year. The Senate is expected to follow suit.

One factor of concern for some members is inflation, which remains historically low. The Fed's optimal rate is 2 percent. For the 12 months ending in October, consumer inflation as measured by the Fed's preferred index is just 0.7 percent, well below its target.

But the Fed sees inflation slowly moving toward its target, according to its most recent economic projections that were released Wednesday. The Fed projects inflation would range between 1.4 percent and 1.6 percent next year and could reach the Fed's target in 2015 at the earliest.

Fed officials still project economic growth of roughly 3 percent next year. But they are slightly more optimistic about unemployment, predicting it could fall as low as 6.3 percent in 2014, down from a low of 6.4 percent forecast in September.

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  1. So much for Eric Holder's conversation about race. If white people have got something to say, they get sued over it. Bottom line: white people have un-freer speech than others as a consequence of the misnamed "Civil rights laws."

  2. I agree, having seen three shows, that I was less than wowed. Disappointing!!

  3. Start drilling, start fracking, and start using our own energy. Other states have enriched their citizens and nearly elminated unemployment by using these resources that are on private land. If you are against the 'low prices' of discount stores, the best way to allow shoppers more choice is to empower them with better earnings. NOT through manipulated gov mandated min wage hikes, but better jobs and higher competitive pay. This would be direct result of using our own energy resources, yet Obama knows that Americans who arent dependent of gov welfare are much less likely to vote Dem, so he looks for ways to ensure America's decline and keep its citizens dependent of gov.

  4. Say It Loud, I'm Black and Ashamed: It's too bad that with certain "black" entertainment events, it seems violence and thuggery follows and the collateral damage that it leaves behinds continues to be a strain on the city in terms of people getting hurt, killed or becoming victims of crimes and/or stretching city resources. I remember shopping in the Meadows area years ago until violence and crime ended make most of the business pack you and leave as did with Lafayette Square and Washington Square. Over the past 10 to 12 years, I remember going to the Indiana Black Expo Soul Picnic in Washington Park. Violence, gang fights and homicides ended that. My great grandmother still bears the scares on her leg from when she was trampled by a group of thugs running from gun fire from a rival gang. With hundreds of police offices downtown still multiple shootings, people getting shot downtown during Black Expo. A number of people getting shots or murdered at black clubs around the city like Club Six on the west side, The Industry downtown, Jamal Tinsley's shot out in front of the Conrad, multiple fights and shootings at the skating rinks, shootings at Circle Center Mall and shooting and robberies and car jackings at Lafayette Mall. Shootings and gang violence and the State Fair. I can go on and on and on. Now Broad Ripple. (Shaking head side to side) Say It Loud, I'm Black and I'm Ashamed.

  5. Ballard Administration. Too funny. This is the least fiscally responsive administration I have ever seen. One thing this article failed to mention, is that the Hoosier State line delivers rail cars to the Amtrak Beech Grove maintenance facility for refurbishment. That's an economic development issue. And the jobs there are high-paying. That alone is worth the City's investment.

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