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Fed cuts back bond-buying program, revises guidance on lending rates

Federal Reserve chief Janet Yellen made her first public statement on Wednesday, talking about the Fed's bond-bying program and changes to interest rates.
By Ananth Baliga   |   March 19, 2014 at 3:57 PM   |   Comments

WASHINGTON, March 19 (UPI) -- The Federal reserve has discarded the jobless rate threshold for considering when to raise borrowing costs and will also scale back its bond-buying program.

During the second day of the Federal Open Market Committee, the dollar continued to post gains after the Fed announced that it would scale back its bond purchases by $10 billion to $55 billion. The announcement had little effect on the bond market, with the benchmark 10-year Treasury at 2.76 percent, up about 0.07 percentage points.

U.S stocks reacted negatively to the Fed's announcement, with the Dow Jones Industrial Average, which had been up around 7 points, sliding to a 150 point loss around 3:15 p.m.

One major takeaway from the Fed's announcement was that interest rates will remain low for the foreseeable future. By keeping its rate close to zero, the Fed is hoping to help boost the economy -- even as it reduces its bond-buying program.

But the Fed dropped its previous yardstick, an unemployment rate of 6.5 percent, and said that it would will look at a wide range of data to determine when to increase rates. The unemployment rate is currently at 6.7 percent and has fallen sharply from the 26-year high of 10 percent it reached in October 2009 after the financial crisis.

In 2012, the Fed linked interest rates to unemployment and inflation for the first time, saying interest rates would be low as long as unemployment was higher than 6.5 percent and inflation was no more than 2.5 percent.

[Bloomberg]
[USAToday]

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