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Fed on course for more tapering

Date

Katherine Rushton

Outgoing US Federal Reserve Chairman Ben Bernanke believes the country can continue to scale back its fiscal stimulus program if employment data remains positive.

Outgoing US Federal Reserve Chairman Ben Bernanke believes the country can continue to scale back its fiscal stimulus program if employment data remains positive. Photo: Reuters

The US Federal Reserve is on course to reduce its monthly bond-buying program again next month, as it continues to wean the American economy off the fiscal stimulus that spurred its economic recovery.

The central bank has already reduced its monthly bond-buying from $US85bn to $US75bn, and is expected to cut it back by a further $10bn in February.

The Federal Open Market Committee is not due to make a firm decision until its meeting on January 28 and 29, but a number of its members have clearly signalled they would vote in favour of another reduction if the US economic recovery remained on course.

Ben Bernanke, the Fed’s outgoing chairman, said last year that it would taper the bond-buying scheme in steady stages if data about America’s employment situation remained positive. He added that Janet Yellen, his deputy who is due to take over as chair of the Fed at the end of thismonth, supported the central bank’s current policy.

More recently, John Williams, president of the San Francisco Fed, added that the Fed was “likely to continue on a path of gradual, measured reductions in the paces of purchases, assuming the economy tracks as we expect it to”.

Initial figures from the US Labour Department show that America added just 74,000 new jobs in December – less than half of the gains of the previous four months. However, economists expect these figures to be revised upwards, while other data have suggested the US recovery is firmly on track.

The American economy grew at its fastest rate in two years in the third quarter, with GDP increasing at the equivalent of 4.1 per cent a year.

Meanwhile, speculation is mounting over Mr Bernanke’s likely next move following his exit from the Fed. According to the Wall Street Journal, the economist has held talks about joining the Brookings Institution, a Washington think tank.

The Telegraph, London

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