TEMPO.CO, Washington - The Federal Reserve says it will cut back on its third quantitative easing (QE3) program by mid 2014. Fed Chairman Ben Bernanke said that America's improving economy would lead to the end of the asset purchases.
Bernanke says that the Fed would continue to buy assets at a pace of US$85 billion a month, and expects to keep interest rates low as long as the unemployment rate remains above 6.5 percent.
In a two-day meeting with the Federal Open Market Committee (FOMC), Bernanke said that economic risks and unemployment have declined in the past two months. "The committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall.”
Bernanke's statement confirmed market expectations that the US central bank saw that the country's growth is quite robust, allowing it to start withdrawing the QE with the aim of adjusting long-term interest rates.
In December last year, the Fed changed its interest rates benchmark to secure employment and inflation prospects. The FOMC said that the interest rate would remain in the range of 0 to 0.25 percent as long as unemployment rate stays above 6.5 percent and inflation stays below 2.5 percent.
The FOMC also said that the American economy continues to show signs of recovery and risks of reduction have begun to subside. However, the FOMC warned that tightening fiscal policies will slow economic growth.
J.P. Morgan Fund Manager Joseph Tanious said the market still questions the clarity of Fed's stimulus cut policy.