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Fed halts bond-buying, keeps rates near zero

Washington - The US Federal Reserve voted on Wednesday to end its monthly purchases of government-backed debt, citing "sufficient underlying strength in the broader economy" to halt the unconventional monetary stimulus programme.

The central bank also kept its benchmark interest rate near zero, which it said "remains appropriate" - more than five years after the United States escaped the 2007-09 recession.

The unprecedented low Federal Funds rate, in place since December 2008, is likely to remain in place "for a considerable time," the Fed's monetary policy committee said, "especially if projected inflation continues to run below the committee's 2-per-cent longer-run goal."

Higher inflation expectations could provoke an earlier hike in interest rates.

In September, US unemployment fell to a six-year low of 5.9%, while the 12-month consumer price index was at 1.7%.

The US government's revised estimate of second-quarter growth was an annualised 4.6%, after the economy stumbled in the first quarter with a 2.1% contraction.

The Fed last month reduced the so-called quantitative easing from $25bn per month to $15bn, continuing to "taper" its bond purchases in $10bn increments.

The bond-buying had been at a pace of $85bn a month - more than $1trn a year - from October 2012 to December 2013, and has been trimmed at every Fed meeting since then.

The policy was meant to boost economic growth by reducing access to Treasury notes and other US government-backed bonds - considered the world's most desirable financial safe haven. Fed policy makers hoped that the unconventional monetary policy would push capital into productive investment in the private economy.

Wednesday's statement cited "substantial improvement in the outlook for the labour market" since the Fed voted in September 2012 to launch the latest quantitative easing, which added about 1.8 trillion dollars to the central bank's balance sheet.

The Fed said that risks to the world's largest economy were "nearly balanced." The spectre of persistently too low inflation has "diminished somewhat" since early 2014, and recent data showed economic activity "expanding at a moderate pace" amid "solid" job gains and falling unemployment.

Major US stock indices closed lower Wednesday after the Federal Reserve action.

The blue-chip Dow Jones Industrial Average dipped 0.18%, the broader Standard & Poor's 500 Index slipped 0.14%, and the technology-heavy Nasdaq Composite Index lost 0.33%.

The central bank launched earlier rounds of asset buying - both government bonds and mortgage-backed securities - in 2008 and 2010 to spur the US economy.

Even with the end of quantitative easing, the Fed said it would maintain the "sizeable levels" of bonds on its balance sheet - totaling nearly $4.5trn - to "help maintain accommodative financial conditions."

With the end of quantitative easing, the focus will shifts to the Federal Funds rate, which the central bank offers to most US banks for unsecured overnight loans.

The central bank's own survey last month of the 17-member Federal Open Market Committee, which sets monetary policy, showed their median forecasts for the Federal Funds rate at 1.375% for 2015, 2.875% for 2016 and 3.125% for 2017 and beyond.

"If the pace of progress in achieving our goals were to quicken, if it were to accelerate, it's likely that the committee would begin raising its target for the federal funds rate sooner than is now anticipated, and might then raise federal funds rates at a faster pace," Fed chief Janet Yellen said in September. "And the opposite is also true if the projection were to change."

The Fed is due to issue its next monetary policy statement on December 17.

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