US Fed holds base interest steady, continues trimming bond-buying program | Business| Economy and finance news from a German perspective | DW | 19.03.2014
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US Fed holds base interest steady, continues trimming bond-buying program

New US Federal Reserve chairwoman, Janet Yellen, has pledged more of the same in her first monthly conference since taking office. She continued trimming the Fed's bond-buying, keeping base interest rates at rock bottom.

The Fed continued its gradual withdrawal of its stimulus spending or quantitative easing - buying up government-backed bonds and mortgage securities with freshly-printed money - on Wednesday, cutting the monthly volume to $55 billion (around 40 billion euros) from $65 billion. It was the third such $10-billion reduction to the fund, the first since January, which once stood at $85 billion per month.

New chairwoman Janet Yellen also announced that the base interest rate would stay steady at the "near-zero" rate of between 0 and 0.25 percent used by the Fed since December 2008. However, Yellen said that the central bank in the US would not use domestic unemployment figures as its sole yardstick to decide when to increase the rates - a change from a previous pledge to wait until "well past the time" unemployment in the US dropped to 6.5 percent.

Record rates' end in sight?

Yellen implied when speaking to reporters that a realistic timeframe for a change in the longstanding, record-low rates could be early in 2015, sooner than some investors had hoped. Nevertheless, Yellen sought to stress that any change would still take time.

"Much remains to be done on both the jobs and inflation fronts," she said in her first press conference since taking the helm on February 1.

The full statement issued on Wednesday said that when making any future decision on a rates increase, the Fed "will assess progress - both realized and expected - towards its objectives of maximum employment and 2-percent inflation."

The announcement had only a mild impact on trading in the US, with the major indices keeping daily losses to less than 1-percent near the end of trading. Returns on US government bonds rose as investors anticipated less support from the Fed in the coming months.

Financial stocks also performed unusually well on Wall Street after the announcement - a higher base interest can enable banks to charge more for loans, mortgages and so forth.

msh/jlw (AFP, AP, dpa, Reuters)

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