The Ottumwa Courier

AP National

January 29, 2014

Fed is expected to further trim bond purchases

WASHINGTON (AP) — The Federal Reserve is expected Wednesday to further reduce its stimulus for the U.S. economy even though that prospect has unsettled global financial markets.

The Fed announced last month that it would pare its monthly bond purchases from $85 billion to $75 billion. And it said that if the economy kept improving, it would likely further slow its bond buying at future meetings. The Fed's bond purchases have been intended to keep long-term loan rates low to spur spending and economic growth.

Most economists expect a string of $10 billion monthly reductions in bond purchases to be announced at each Fed meeting this year, concluding with a final $15 billion cut in December.

The two-day Fed meeting that ends Wednesday will be the last to be presided over by Ben Bernanke, who is stepping down after eight years as chairman and will be succeeded next week by Vice Chair Janet Yellen. She is expected to stick closely with Bernanke's policies.

Last month, along with the modest trim in its bond purchases, the Fed made clear it plans to keep short-term rates historically low "well past" the time the unemployment rate dips below 6.5 percent. The rate is now 6.7 percent.

Managing a slowdown in the Fed's bond purchases without roiling markets will pose a tough early test for Yellen. Investors have been nervous in part because a pullback in Fed bond buying will likely mean higher rates. Borrowing could weaken as a result.

Many also fear that higher U.S. rates will lead some bond investors to move cash out of emerging markets and into the United States to seek higher returns. That fear has depressed currency values and roiled stock markets in a number of developing countries.

The Turkish central bank held an emergency meeting Tuesday and announced it was raising a key rate from 7.75 percent to 12 percent to try to reduce inflation and boost its currency, the lira, which had fallen to a record low.

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