The Federal Reserve said Wednesday that it will begin scaling back its massive bond-buying program in its first big step toward unwinding the extraordinary stimulus it has pumped into the economy since the 2008 financial crisis. The move marks a milestone in the halting, 4-year-old recovery because it signifies that the Fed finally believes the economy will soon be strong enough to stand on its own. The Dow Jones industrial average rose nearly 300 points, reacting more to the prospects of brisker growth than the tapering of easy money. "We expect economic growth to be strong enough to support further job gains," Fed Chairman Ben Bernanke said after a two-day Fed meeting. Starting in January, the Fed said, it will buy $75 billion a month in government bonds, down from $85 billion a month since September 2012 . The purchases are intended to hold down long-term interest rates and spur the economy. If recent moderate growth continues, the Fed could make similar "measured" reductions of the purchases at each meeting and halt them by the end of 2014, Bernanke said. Since the Fed began the program, employers have added 2.9 million jobs and the jobless rate had dropped to 7% last month from 8.1%, Bernanke noted. Another positive, he said, is the two-year budget deal passed by Congress this week. Yet he stressed that the recovery "has much farther to travel," with long-term unemployment still near record levels. Inflation, he added, is running well below the Fed's 2% target, the hallmark of a sluggish economy. As a result, the Fed said it expects to keep its benchmark short-term interest rate near zero "well past" the Fed's 6.5% unemployment threshold, especially if inflation remains low. Bernanke also said the Fed is not withdrawing stimulus but simply slowing the flow of easy money. And if the economy or job market slows, "we could skip a meeting" and keep the bond purchases at existing levels, he added. Rising interest rates will mean higher borrowing costs for consumers and businesses. But while yields on 10-year Treasuries initially rose after the Fed announcement, they closed virtually unchanged at 2.89%.
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