The Federal Reserve on Wednesday left its benchmark lending target, the fed funds rate, unchanged at 0.00%-0.25% and trimmed USD10 billion from its USD75 billion monthly asset-purchasing program in place to spur recovery.
The Fed is now purchasing USD65 billion in Treasury holdings and mortgage debt a month to help make broader financial conditions more accommodative in order to strengthen recovery.
Economic activity is picking up, the labor market is making some improvement, while recent congressional inability to agree on spending packages is still dragging on recovery albeit less nowadays due to recent compromises.
Such a scenario prompted monetary authorities to taper the Fed's monthly bond purchases, which aim to push down long-term interest rates to boost the economy.
"Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat," the U.S. central bank said in a statement after its two-day monetary policy meeting concluded earlier.
"Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."
The Fed added that even though it will be buying fewer bonds to prop up the economy, it will still continue to stimulate the economy until it feels comfortable with the labor market in the context of price stability.
"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, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate," the Fed said in the statement.
The Fed added it will keep a close eye on economic indicators before deciding to wind down its stimulus program even further.
"If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings," the Fed said.
"However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases."
The decision, the last one with Ben Bernanke acting as Fed chairman, matched market expectations.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.05% at 80.68.