Dow Soars After Fed Cuts Back Bond Purchases

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December 18, 2013 by   Comments Off on Dow Soars After Fed Cuts Back Bond Purchases

The Dow Jones industrial average soared almost 300 points, well over 1%, shortly after the Federal Reserve announced today (Dec.) that it will reduce its stimulus for the U.S. economy because the job market has shown steady improvement.

As reported by the Associated Press, the shift could lead to higher long-term borrowing rates for individuals and businesses.

Bond prices fluctuated, but by late afternoon, the yield on the 10-year Treasury note was unchanged at 2.88%.

The Fed’s decision amounts to a vote of confidence in the economy six years after the Great Recession struck. It signals the Fed’s belief that the U.S. economy is finally achieving consistent gains.

The central bank said in a statement after its policy meeting ended Wednesday that it will trim its $85 billion a month in bond purchases by $10 billion starting in January. At a news conference afterward, Chairman Ben Bernanke said the Fed expects to make “similar moderate” reductions in its purchases if economic improvements continue.

At the same time, the Fed strengthened its commitment to record-low short-term rates. It said it plans to hold its key short-term rate near zero “well past” the time when unemployment falls below 6.5%. Unemployment is now 7 percent.

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