Investing.com - The Federal Reserve on Wednesday said it was leaving its benchmark interest rate unchanged at 0.00-0.25% but said it would cut its monthly bond-buying program to $35 billion from $45 billion.
The Fed pointed out that economic activity has rebounded and added the labor market continued to strengthen, though monetary authorities still see room for more improvement.
"Labor market indicators generally showed further improvement. The unemployment rate, though lower, remains elevated," the Fed said in its statement.
"Household spending appears to be rising moderately and business fixed investment resumed its advance, while the recovery in the housing sector remained slow."
Fiscal policy continues to dampen economic growth, although the extent of that restraint is diminishing, the Fed added, while consumer prices remain in comfort zones.
"Inflation has been running below the Committee''s longer-run objective, but longer-term inflation expectations have remained stable."
The U.S. central bank said highly accommodative policy remains appropriate to keep recovery on track and added additional stimulus tapering is likely if inflation rates and the labor market continue to improve.
When determining how long benchmark interest rates will remain at rock-bottom levels, monetary authorities will pay close attention to both real and anticipated progress needed to reach maximum employment and 2% inflation, including labor market conditions, inflationary pressures, inflation expectations, and readings on financial developments.
While investors expect some time to pass between when the Fed closes its stimulus program and when it first hikes interest rates, they should not expect that time to pass too quickly, as the Fed wants to be sure the economy can stand on its own two feet before tightening.
"The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee''s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored," the Fed said.
"The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
The announcement came as little surprise to markets.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.11% at 80.62.
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