The U.S. Federal Reserve will reduce its purchase of assets by a modest $10 billion to a total of $75 billion a month starting in January 2014 due to the improved situation on the labour market and then probably continue to reduce the pace of asset purchases "in further measured steps" in coming months if the jobless rate continues to fall and inflation rises towards the central bank's 2.0 percent objective.
The Federal Reserve, the central bank of the United States, will initially trim its purchase of longer-term Treasury bonds by $5 billion to $40 billion a month and its purchase of agency-backed mortgage securities by $5 billion to $35 billion.
While the Fed noted that the U.S. economy was expanding at a moderate pace and the labour market was improving - the unemployment rate fell to 7.0 percent in November from 7.3 percent in October - it added that the jobless rate remained elevated and its asset purchases were not on a preset course and decisions about the future pace of asset purchases was contingent on the economic outlook.
The Fed also reaffirmed that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens," the Fed said after a meeting of its Federal Open Market Committee (FOMC).
It also held its policy rate, the target for the federal funds rate, steady at 0-0.25 percent, and that it expects to keep the rate at this level as long as the jobless rate is above 6.5 percent and inflation is projected to remain a maximum 0.50 percentage point above its 2.0 percent target.
Based on its latest forecasts, the Fed said it expects to keep the fed funds rate at essentially zero "well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal."
In its December economic projection, the Fed trimmed its forecast for personal consumption expenditure inflation - the Fed's preferred inflation gauge - to 0.9-1.0 percent for this year, down from the September forecast of 1.1-1.2 percent, the 2014 forecast to 1.4-1.6 percent from 1.3-1.8 percent, the 2015 forecast to 1.5-2.0 percent from 1.6-2.0 percent and maintained its 2016 forecast at 1.7-2.0 percent.
The forecast for the U.S. unemployment rate was also cut, with the Fed now expecting the rate to decline to 6.3-6.6 percent next year, down from a previous forecast of 6.4-6.8 percent, the 2015 jobless rate to fall to 5.8-6.1 percent from 5.9-6.2 percent and the 2016 rate to fall to 5.3-5.8 percent from a previous 5.4-5.9 percent.
The forecast for economic growth was largely unchanged, with Gross Domestic Product seen expanding by 2.8-3.2 percent in 2014, compared with its previous forecast of 2.9-3.1 percent, the 2015 GDP rising by 3.0-3.4 percent from 3.0-3.5 percent and GDP in 2016 rising by 2.5-3.2 percent from 2.5-3.3 percent.
The U.S. economy expanded by an annual rate of 3.6 percent in the third quarter, up from 2.5 percent in the second quarter and 1.1 percent in the first quarter.
The Fed said household spending and fixed investments have advanced, the housing sector had slowed and while fiscal policy is still restraining growth, the extent may be diminishing.
"The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced," the Fed said, adding that it was carefully monitoring inflation to be sure that it moves higher as inflation persistently below its target could pose a risk to the economy.
Inflation also picked up, rising to 1.2 percent in November from 1.0 percent in October.
"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases," it said.