WASHINGTON — The Federal Reserve said today it will cut its monthly bond purchases by an additional $10 billion to $65 billion because of a strengthening U.S. economy.
It’s doing so even though the prospect of reduced Fed stimulus and higher U.S. interest rates has rattled global markets.
The Fed also reaffirmed its plan to keep short-term rates at record lows in a statement it issued today after Ben Bernanke’s final policy meeting. Bernanke will step down Friday after eight years as chairman.
Many global investors fear that reduced Fed bond buying will boost U.S. rates and cause investors to move money out of emerging markets and into the United States for higher returns. Currency values in emerging nations have fallen. India, Turkey and South Africa have raised rates to try to protect their currencies.
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 bond purchases have been intended to keep long-term borrowing rates low to spur spending and growth. The Fed’s decision today to continue paring its purchases signals its belief that the economy is showing consistent improvement. In its statement, it upgraded it assessment to say “growth in economic activity picked up in recent quarters.”