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Fed cuts bond-buying program by another $10 billion

Fed Chair Janet Yellen.Fed Chair Janet Yellen.
Fed Chair Janet Yellen.Photo by Alex Wong--Getty Images

The Fed announced a widely anticipated cut to its bond-buying program and struck a mostly optimistic tone in touting rebound in economic activity in recent months and improvement in the labor market.

In a Federal Open Market Committee statement issued Wednesday, the Fed signaled some aspects of the economy were challenging. The housing sector’s recovery remained slow and the unemployment rate, which has lowered, is still elevated.

The stock market has been rising and U.S. employers as of this May officially added enough jobs in recent years to recover all 8.7 million jobs lost during the financial crisis. The unemployment rate currently stands at 6.3%, far below the peak of 10% in late 2009 after the recession officially ended.

But some post-recession trends–including long-term unemployment, stagnant wages and low labor force participation–continue to vex policymakers. Another recent concern: data that suggests inflation is rising, especially after the Labor Department reported May prices reaching the largest monthly growth since February 2013.

The bond purchases going forward will be split between $15 billion of mortgage-backed securities and $20 billion of Treasuries, both $5 billion a month lower than the prior pace. That move was widely anticipated by observers, and a majority of economists surveyed by Bloomberg News expect the Fed will halt bond buying at its October meeting.

On rates, the Fed stuck with the language it used in its April report: saying the committee will continue to assess progress toward its objectives of maximum employment and 2% inflation in determining how long to maintain the current 0 to 0.25% target range for the federal funds rate. The FOMC continues to expect to maintain that target range “for a considerable time” after the asset-purchase program ends.

The meeting is the third under Fed Chair Janet Yellen, though she doesn’t make policy decisions by herself. The FOMC, which has 12 voting members, determines the appropriate stances of monetary policy and reviews economic and financial conditions. The June meeting is the fourth of eight the FOMC will hold this year.

Meanwhile, the International Monetary Fund earlier this week cut its 2014 growth forecast for the United States, citing a harsh winter and still-struggling housing market. But the organization, which raised several concerns, stuck a somewhat bullish tone when it said a meaningful economic recovery is underway and growth should continue for the rest of the year. That growth would signal a recovery after U.S. gross domestic product decreased 1% in the first quarter, revised figures issued by the Commerce Department late last month.