WASHINGTON — In its final major decision under the leadership of Ben Bernanke, the Federal Reserve said Wednesday that it would continue to slowly dismantle its stimulus campaign, citing “growing underlying strength in the broader economy.”
The Fed’s policymaking committee voted unanimously to pare monthly bond purchases by another $10 billion — its first unanimous vote since 2011 — despite lingering concerns about the health of the U.S. economy and growing signs that the Fed’s retreat is causing problems in emerging markets including Turkey.
The decision reflected the optimism of Fed officials that the domestic economy is finally poised for faster growth after years of false starts and setbacks. It allows Bernanke, the Fed chairman since 2006, who once hoped to oversee the end of the central bank’s stimulus campaign, to step down Friday having at least directed the first steps.
Looking ahead, Bernanke also leaves a clear road map pointing toward an end of the Fed’s bond purchases in October or December. His successor, Janet Yellen, has supported that plan as the Fed’s vice chairwoman. She is likely to give the first indication of her own views when she testifies before Congress next month.
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Stock indexes fell Wednesday as the Fed’s retreat rippled through global markets, driving money toward less risky investments like Treasury securities. The broad Standard & Poor’s 500 stock index fell 1 percent to close at 1,774.20, while the price of the benchmark 10-year Treasury note hit a two-month high.
The Fed’s retreat is producing a global shift in investment patterns as investors who chased higher returns in foreign markets are beginning to anticipate the return of higher interest rates in the U.S. That is causing problems in countries like Turkey that depend heavily on foreign investment.
In Turkey, the central bank tried to bolster that nation’s currency Tuesday by sharply raising the benchmark rate, but the Turkish lira and other currencies of emerging markets — including that of South Africa, which also raised interest rates — continued to slump Wednesday.
Fed officials, focused on the health of the U.S. economy, are unlikely to adjust policy in response to the foreign turmoil unless they see stronger evidence that it is a threat to the domestic economy.
“In the end of the day, we live in a modern, global financial system and this is, I think, just part of the world that we live in, in terms of monetary policy in the United States having effects outside the United States,” John C. Williams, president of the Federal Reserve Bank of San Francisco, said recently at the Brookings Institution.
“The clear Fed default position is that tapering will continue,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “It would take serious U.S. weakness or a real emerging market disaster to make the FOMC pause.”
The Fed expanded its holdings of Treasury and mortgage-backed securities by $85 billion each month in 2013 in an effort to spur job creation and drive down unemployment. In December the Fed announced that it would cut the volume to $75 billion in January. It said Wednesday that it would further reduce the volume of purchases to $65 billion in February: $30 billion of mortgage bonds, $35 billion of Treasurys. It also said it was “likely” to continue the retreat.
The Fed did not change its guidance that it intends to keep short-term interest rates near zero “well past the time” that the unemployment rate falls below 6.5 percent. The unemployment rate stood at 6.7 percent in December.
The question of what to say next about interest rates — rather than how quickly to taper bond buying — is likely to be the first significant challenge of Yellen’s tenure.
“It will take a pretty big data surprise to knock the Fed off its course of a $10 billion per meeting reduction in asset purchases,” Michael Feroli, chief U.S. economist at JPMorgan Chase, wrote Wednesday.
The government’s initial estimate of lower-than-expected job growth in December, released in early January, did not appear to shift the views of Fed officials. Analysts expect figures to show that the U.S. economy grew at a relatively strong annualized rate of 3.2 percent in the fourth quarter; the figures are set to be released Thursday.
Richard W. Fisher, president of the Federal Reserve Bank of Dallas, said this month that in conversations with business executives he was hearing “a better mood than I’ve heard before.”
He continued: “Another thing I’m hearing is that the fourth quarter was pretty good; December was stronger than people expected.”