The Federal Reserve will begin gradually reducing the scale of its bond-buying stimulus program, known as quantitative easing, chairman Ben Bernanke announced on Wednesday. Bernanke, who will step down from his post next month, cited an improving job market as justification for the so-called “taper” of quantitative easing.
“Recent economic indicators have increased our confidence that the job market gains will continue,” said Bernanke during a press conference. The unemployment rate is currently at 7%, according to the latest report from the Bureau of Labor Statistics.
Quantitative easing will end in gradual stages. What that means in the short term is that the Federal Reserve will start buying $75 billion worth of government bonds per month, as opposed to the $85 billion in purchases it was making before. The purchase of those bonds was intended to keep interest rates low and pump more cash into the ailing economy. Bernanke emphasized that this stimulus would continue for a long time.
“We’re not doing less,” he said.
This is the third quantitative easing program that the Federal Reserve has implemented since the 2008 financial collapse. The first round, called QE1, began in November 2008 and ended in March 2010, after economic conditions began to slightly improve. But the Fed was back at it by November of that year with QE2, a program that lasted from November 2010 to June 2011. The latest round of quantitative easing, QE3, began in September 2012.
This week, the Senate is widely expected to confirm current Fed vice chair Janet Yellen to be Bernanke’s successor. Yellen would be the first woman to hold the top central banking position. Bernanke indicated that she would continue the taper.
“I consulted closely with her on these decisions … and she fully supports what we did today,” he said.