Improving US jobs growth led to Federal Reserve taper

Federal Reserve members mostly agreed about a reduction in the Central Bank's stimulus efforts in December, meeting minutes released on Wednesday revealed.

The Central Bank announced a $10 billion (£6.1 billion) a month reduction in the bond buying program at the end of its December meeting.

They decided to decrease stimulus efforts in 'measured steps' to avoid surprising markets. Better than expected job growth was one reason cited for the pullback.

Some members, however, worried that financial markets might misinterpret the move.

During the summer of 2013, comments made by outgoing chairman Ben Bernanke indicating a reduction in stimulus efforts caused market volatility and a steep increase in mortgage rates.

However, by the time an easing of the program, known as quantitative easing, was announced in December, investors were more relaxed about the move.

All three US indexes posted gains of more than 25% in 2013.

In December, the Fed cut its purchases of mortgage bonds and US Treasury bonds from $85 billion a month to $75 billion a month in a move known as a 'taper'.

Most analysts expect that if US economic conditions continue to improve, the bank will continue to cut its purchases by $10 billion after each policy meeting this year.

Fed members were eager to reassure markets that a reduction in bond buying did not indicate the bank was completely withdrawing its support of the US economy.

Some members pushed for a change in language that would show the Central Bank planned to keep short term interest rates low.

As a result, in its December statement, the Fed said it would keep the short-term rate low 'well past' the time the unemployment rate falls below 6.5%, as long as inflation remained in check.

Some members advocated changing the unemployment threshold to 6%, but that measure was overruled.

The next US jobs report is due to be released on Friday. Members also discussed the long road ahead to re-normalise monetary policy. As a result of its extraordinary stimulus efforts, the Fed has purchased over $4 trillion worth of bonds since the 2008-2009 financial collapse - a move that has worried many US politicians.

Incoming head Janet Yellen, who will take over from Bernanke on February 1, has to decide how and when the bank will sell those bonds and return to its traditional task of raising and lowering the short term interest rate.

BBC