Members of the Federal Open Market Committee meeting Wednesday decided to start ramping down their bond-buying program known as quantitative easing in January, dropping monthly purchases to $75 billion from $85 billion.
All but one of the 10 members felt the time was right, with economic activity expanding at a moderate pace since the group met in October, including improved labor market conditions, a dip in the unemployment rate and increased consumer spending.
“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,” FOMC members said in a statement.
“The committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” the members said in the statement.
FOMC members did not change the current target range for a federal funds rate of zero to 0.25% and will continue to keep it in that range “well past the time that the unemployment rate declines below 6.5%, as long as inflation projections remain below expectations.”
“The more interesting question is not do they taper tomorrow or in January,” said John Bellows, portfolio manager and research analyst with Western Asset Management Co., which runs $443 billion. “I think most people expect it. I think the bigger question is how does the market respond to it? The market anticipates this. They've had a number of months to get used to it.”
And the markets apparently liked the news. The Dow Jones industrial average rose 292.71 points, or 1.84%, to close at 16,167.97 points. The S&P 500 was up 29.65 points, or 1.66%, to 1,810.65 points. And the Nasdaq composite climbed 46.38 points, or 1.15%, to 4,070.06 points. All numbers are preliminary.