In a somewhat surprising move, the Federal Reserve today said it would begin to pare back on its quantitative-easing stimulus program.
The Fed, which has been buying $85 billion in bonds each month, capped months of discussion and a few close calls with the move, which will reduce long-term Treasury bond purchases by $5 billion per month and mortgage-backed securities purchases by the same amount. The Fed also said it would keep short-term interest rates near zero deep into the foreseeable future, with unemployment still above its 6.5% threshold and inflation still far below its 2% target.
"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the committee decided to modestly reduce the pace of its asset purchases," the Fed said.
The current round of quantitative easing began in September of last year, although the Fed began buying bonds in November 2008. The central bank was widely expected to begin tapering those purchases in September, but when it did not, many expected the current levels to outlast Fed Chairman Ben Bernanke, whose term ends next month.
In October, Appaloosa Management founder David Tepper said that a taper would not come "for a long time now," and would not begin until next year.