Fed Reserve to Scale Back Stimulus Program

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The Federal Reserve gave its strongest sign in years that the economy is getting back on track, announcing Wednesday that it's scaling back the stimulus that's been bolstering the economy.

"Starting in January we will be purchasing $75 billion of securities a month, reducing purchasing of treasuries and mortgage backed securities by $5 billion each. In other words, the Fed is going to start scaling back its efforts to stimulate economic growth."
   
The Dow Jones industrial average responded with enthusiasm to the encouraging news, soaring high above the 16,000 mark after gaining nearly 300 points.

***What does this tapering of monthly bond buys mean for the U.S. economy going forward? Kereakos Zuras, a former advisor to President George W. Bush and an expert in turning around failing businesses, addressed that question and more on CBN News Today, Dec. 19.
    
Investors overwhelmingly approve of the Feds latest action largely because it comes with assurances that interest rates will be kept low to keep the economy moving.

"It's certainly a vote of confidence that the Fed has for the economic recovery," Standard and Poor's economist Beth Ann Bovino said.
    
Rates won't be raised again until the jobless rate falls below 6.5 percent. It was at 7 percent in November.
    
Bernanke said the Fed expects to continue reducing its bond-buying program in "measured steps" in the New Year, but it will all depend on how the economy performs in coming months.

"The economy is continuing to make progress, but that it also has much farther to go before conditions can be judged normal," Bernanke said.
    
The Fed's bond-buying program is designed to keep long-term interest rates low and encourage more borrowing and spending. But some analysts are skeptical it will work in the end.
    
Bill Frezza, a Boston-based venture capitalist and fellow at the Competitive Enterprise Institute, says the Fed has only created an illusion of prosperity.

"They've inflated asset prices and home mortgages thanks to their bond-buying programs and hoping that the economy fills in from behind," he told CBN News.

Click play to watch Bill Frezza share more thoughts with CBN Newswatch, Dec. 18.

"What we're seeing instead is the entire Western world has become moribund (near death) with respect to growth and this is what happens when you interfere in the economy at this level," he said.
   
If the Fed continues at the pace it's set, the bond-buying program would be complete toward the end of 2014.

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