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Fed cuts stimulus by US$10 billion again

WASHINGTON/TOKYO -- The Federal Reserve stayed the course on tapering its stimulus for the U.S. economy Wednesday, reducing asset purchases by US$10 billion for the second month in a row.

Amid emerging-market turmoil blamed in part on its stimulus reduction, the Fed, as expected, cut the monthly bond-buying program to US$65 billion beginning February and left its benchmark interest rate near zero, citing “growing underlying strength in the broader economy.”

Wrapping up the final meeting of the Federal Open Market Committee (FOMC) under departing Chairman Ben Bernanke, policy makers noted that despite some mixed economic indicators since their December meeting, overall the U.S. economy was doing better.

Information indicates “that growth in economic activity picked up in recent quarters,” the FOMC said in a statement.

That was a bit more upbeat than its December assessment of the economy “expanding at a moderate pace.”

“The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced,” it said.

There were few changes or surprises in the statement, said Ryan Sweet of Moody's Analytics.

“If there was any surprise, it was the Fed's decision not to cite international downside risks. The Fed was not going to be specific by mentioning emerging markets, but policymakers didn't acknowledge the recent strains in global financial markets,” Sweet said.

U.S. and European stock markets slumped after attempts by central banks in Turkey and South Africa to ease the fall in their currencies failed, raising concerns about the outlook for emerging economies.

“The fear is that central banks have lost control in these emerging markets,” said Chris Low of FTN Financial.

On Wall Street, the broad-market S&P 500 index dropped 1 percent, the Dow Jones Industrial Average of 30 blue-chip stocks lost 1.2 percent and the tech-rich Nasdaq Composite dropped 1.1 percent.

The Fed, whose dual mandate is maximum employment and price stability, said that conditions were appropriate for a further “measured” tapering of stimulus.

“Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy,” it said.

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A television screen on the floor of the New York Stock Exchange shows the decision of the Federal Reserve to reduce economic stimulus by US$10 billion for the second consecutive month, Wednesday, Jan. 29. (AP)

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