Fed sticks with plan to shrink stimulus

Fed sticks with plan to shrink stimulus
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The Federal Reserve announced Wednesday it will shrink the size of its monthly bond purchases to $65 billion, as it stuck with its plan to roll back stimulus.

The $10 billion haircut to the Fed’s “quantitative easing” is the second $10 billion cut in as many months. Fed Chairman Ben Bernanke announced plans last year to gradually unwind years’ worth of support the Fed has provided the economy.

The recent downturn in financial markets, as well as a disappointing December jobs report, had led to some speculation the Fed would hit the brakes on its slowdown, especially because Bernanke has emphasized the Fed’s course will be heavily reliant on current economic data.

The Dow Jones Industrial Average has lost 685 points, or 4.16 percent, in the last five days. And December’s jobs report found the economy added just 74,000 jobs to close out 2013, after posting gains of over 200,000 for three out of the four prior months.

The Dow hit new lows on Wednesday, after the Fed released its statement, ending the day down 189 points.

But the turmoil in financial markets was not enough to deter the Fed from reducing its stimulus.  

In its latest policy statement, the Federal Open Market Committee merely noted that data on the labor market has been “mixed” but overall positive. The panel also noted housing and business spending had accelerated in recent months in justifying its decision to keep reducing the size of the Fed's purchases.

The Fed’s policy update is the final of Bernanke’s tenure; he will officially hand the reins to Janet Yellen on Feb. 1.

Stocks slid further on the news that the Fed would not be prolonging its stimulus. The Dow hit a new low for the day after the statement was released, falling 162 points since trading began.

— This story was updated at 4:25 p.m.