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Federal Reserve reduced bond buys after seeing big job gains

WASHINGTON -- The Federal Reserve agreed last month to modestly reduce its bond purchases because of improvements in the job market that many Fed members felt would be sustained.

Many participants called the job gains “meaningful,” according to minutes, or written records, of the Dec. 18-19 meeting that were released Wednesday.

Still, the minutes showed that some participants worried that investors might misread the move as a step toward raising the Fed's key short-term interest rate.

In response, the Fed said it plans to keep its short-term rate low “well past” the time the unemployment rate dropped below 6.5 percent, as long as inflation stayed low.

Some members wanted to lower that unemployment threshold to 6 percent. But the majority opposed doing so. They favored assessing a range of measures of the job market — not just the unemployment rate — in making any policy changes.

Analysts said the improving job market and better overall economic conditions apparently convinced the Fed that they could take a cautious first step toward trimming the bond purchases.

The minutes “revealed a growing confidence in the economic outlook among members and a broad expectation for stronger growth as fiscal restraint diminishes,” said James Marple, senior economist at TD Economics.

The economy has added an average of 200,000 jobs a month from August through November. And the unemployment rate has reached a five-year low of 7 percent.

On Friday, the government will release its employment report for December. A private report Wednesday raised expectations for Friday's government report. Payroll provider ADP said businesses added 238,000 jobs in December, up slightly from 229,000 in the previous month.

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