Fed trims QE3 by $10 billion

The U.S. Federal Reserve on Wednesday announced to reduce its pace of bond purchases, the third round of quantitative easing program, by 10 billion U.S. dollars starting January on the back of a stronger economic recovery.

In what amounts to the beginning of the end of its bond-buying program, the central back will cut back on its monthly asset purchases from 85 billion dollars to 75 billion dollars, with 10 billion dollars trimmed equally from mortgage-back securities and Treasury bonds, the Fed said after a two-day policy meeting of its Federal Open Market Committee (FOMC). the Fed's powerful policy setting panel.

The policy shift comes after the U.S. economic activity is expanding at a "moderate" pace, and labor market has shown steady improvement, the Fed said in a statement.

"Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing," said the Fed.

The FOMC expects that with appropriate policy accommodation, U. S. economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the FOMC judges consistent with its dual mandate of price stability and full employment.

"To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens," noted the statement.

Since the onset of the financial crisis, the Fed has kept its short-term interest rate at the historically low levels and completed two rounds of quantitative easing programs, known as QE1 and QE2. It is now purchasing longer-term government debt and mortgage-backed securities at a pace of 85 billion U.S. dollars per month, commonly known as QE3.