Because the economy continues to improve since it started tapering its stimulus program, the Federal Reserve said it would continue to slow the pace of its bond-buying programs.
In a statement released on Wednesday, the Federal Open Market Committee said:
"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month."
The Wall Street Journal reports that this is the first time all the members of the FOMC agreed on a way forward since June 2011. The paper adds:
"Officials offered a mixed assessment of the economy's performance. On the positive side, the Fed said that 'growth in economic activity picked up in recent quarters.' The central bank also observed that household spending and business fixed investment both 'advanced more quickly in recent months.' But officials described labor market indicators as 'mixed,' likely in reference to a disappointing December jobs report, and observed that the housing recovery 'slowed somewhat.' ...
"The central bank announced it would start scaling back the program following its Dec. 17-18 meeting, and made the first $10 billion cut in January. At the time, Fed Chairman Ben Bernanke strongly suggested the Fed's preference was to whittle down its bond buying by $10 billion at each of its policy meetings this year, wrapping up the program altogether near the end of the year.
"Wednesday's decision affirms that timeline."
Update at 4:10 p.m. ET. Markets Close Lower:
The major indices closed sharply lower on Wednesday. The Dow was down 189.7 points; Nasdaq was down 46.53 and the S&P was down 18.30.
The Wall Street Journal reports the drop was sparked by an "emerging-markets selloff," which is tied to the Fed action announced today:
"The Fed's step back from bond buying has stoked worries about the stability of emerging markets in recent sessions. Investors say the central bank's program, aimed at stimulating the U.S. economy, pushed investors to send cash to developing economies, taking on more risk in search of greater returns. Investors say another concern is the outlook for China's economy, a major driver for emerging-markets growth."
Update at 2:24 p.m. ET. Dow Sinks:
The AP just moved this alert:
"Dow average sinks 200 points, extending losses after Fed further reduces economic stimulus."