Fed holds firm on tapering as US economy improves

The US Federal Reserve has again decided not to reduce its bond-buying programme in spite of “moderate” improvements to US economic activity.

In a statement released yesterday the Federal Open Market Committee - which sets monetary policy in the US - said it would continue to pump $85bn (£53bn) a month into the US economy and “await more evidence that progress will be sustained” before reducing this policy.

But the committee’s statement also implied that the three-week government shutdown in September and October, prompted by political deadlock over government debt negotiations, had not damaged the US economy significantly.

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The committee said “economic activity has continued to expand at a moderate pace” since September’s meeting, citing increases in fixed investment by businesses and household spending.

The unemployment rate - a key data point for the Fed’s decision to reduce quantitative easing - remained “elevated”, the committee added.

The S&P500 index closed down 0.5 per cent yesterday, having reached a record high on Tuesday. The yield on 10-year US government bonds rose to 2.54 as prices fell.