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US Fed to end bond buying in October

business Updated: Jul 10, 2014 07:25 IST
Yashwant Raj
Yashwant Raj
Hindustan Times

The United States Federal Reserve on Wednesday announced it will end its bond buying programme by October saying the domestic economy looked on course to recovery.

The Fed, as the US central bank is called, began winding down the programme — through staggered cuts — in January, saying it intended to be done with it by the end of the year.

But it never said when exactly, until now, that is.

“If the economy progresses about as the committee (the Fed) expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting,” the Fed said in minutes of it June policy meeting released on Wednesday.

Indian stocks and the rupee had gone into a precipitous dive following the first indication that the Fed would be tapering off the bond buying last summer, which didn’t happen.

But when the taper did begin this January, it really had not much impact on the Indian economy, which authorities and experts has said, was much better prepared.

The Fed began buying bonds — backed by housing mortgages — during the economic crisis of 2008, expanding it substantially in 2012, to hold down longterm interest rates.

That would encourage or force investors to take their money elsewhere — possibly into riskier corporate debt and stocks, which in turn would boost investments and hiring.

Critics of the programme, mostly conservatives, have long argued that the bond-buying may lead to inflation without actually creating more jobs.

Starting July the Fed will cut its monthly bond-buying further. “Beginning in July, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $15 billion per month rather than $20 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $20 billion per month rather than $25 billion per month,” the Fed said.