The United States Federal Reserve announced Wednesday that it will start drawing down (i.e. “tapering”) its multibillion-dollar quantitative easing policies in 2014.
The Fed will begin tapering its $85 billion monthly purchases of Treasurys and Treasury mortgage-backed securities by $5 billion each starting in January.
It will commit roughly $35 billion per month to mortgage bonds and $40 billion per month to Treasuries.
The Fed did not change its position on keeping a key short-term interest rate near zero, stating that it would not consider increasing the rate until U.S. unemployment has reached at least 6.5 percent.
The announcement, which took many analysts by surprise, caused a whiplash effect in U.S. stocks:
The decision was approved by the Fed presidents on a 9-1 vote.
The president of the Federal Reserve Bank of Boston, Eric Rosengren, was the only member who objected to the decision, arguing that the move is premature because unemployment is high and inflation low.
Read the full Fed statement here:
The Fed has been operating under the fourth and unmodified iteration of its quantitative easing program (“QE4”) since December 2012. Outgoing Fed Chairman Ben Bernanke expects that the agency’s easing policies will run through at least December of 2014.
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This post has been updated.