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Fed begins scaling back monetary stimulus; Asian markets rally


 Fed begins scaling back monetary stimulus; Asian markets rally
The Federal Reserve will begin a reduction in its bond purchase programme or QE3 from January 2014. The Fed has decided to scale back the programme by $75 billion, as against the $85 billion in asset purchases - a reduction of $10 billion.

The Fed would now reduce purchases of Treasurys and mortgage-backed securities by $10 billion a month beginning in January.

"As you know, we have been purchasing $85 billion a month in longer-term Treasury and agency mortgage-backed securities. Starting in January, we will be purchasing $75 billion of securities a month, reducing purchases of Treasuries and mortgage-backed securities by $5 billion each. It is important to note though that, even after this reduction, we will be still be expanding our holdings of longer-term securities at a rapid pace," the Fed said in a statement.

"Today's policy actions reflect the Committee's assessment that the economy is continuing to make progress, but that it also has much farther to travel before conditions can be judged normal. Notably, despite significant fiscal headwinds, the economy has been expanding at a moderate pace, and we expect that growth will pick up somewhat in coming quarters, helped by highly accommodative monetary policy and waning fiscal drag," the Fed said.

Although the news is not good for emerging markets, Asian equities rallied as the Fed said that interest rates would stay lower for longer.

"The Committee also clarified its guidance on interest rates, emphasizing that the current near-zero range for the federal funds rate target likely will remain appropriate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's two percent longer-run goal," the Fed said in a statement.

Asian markets including the Shanghai Composite and the Hang Sang rallied in trade.

Story first published: Thursday, December 19, 2013, 8:53 [IST]
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