The Federal Reserve cited stronger jobs growth as a reason for its call to start to reverse its bond-buying program. They forecasts unemployment of 6.3 percent in 2014, up from its previous forecast of 6.4 percent. The Federal Reserve tempered nervous investors by suggesting its key federal funds rate would keep less than previously expected. It depends on whether the Federal Reserve’s unemployment rate target is hit. The Federal Reserve has kept interest rates close to zero since late 2008 and has signaled it won’t raise its federal funds rate until unemployment hits, at the least, 6.5 percent.

In a surprise move, the Federal Reserve decided the U.S. economy was doing well enough that it might begin to cut back on its generous $85.0-billion a month quantitative easing (QE) strategy.

It is a “surprise” because the Federal Reserve at the start said it would not think about tapering until the U.S. economy was on solid, sustainable economic ground that meant an unemployment rate of 6.5% and inflation of 2.5%. Today, unemployment sits at seven percent and inflation is close to historic lows at below one percent.

Stock Market Grows

Against a weak economic backdrop, the Federal Reserve created a brave and daring call to slash its monthly QE policy by a paltry $10.0 billion. Which means that rather than pumping $1.0 trillion into the U.S. economy next year, it is solely going to inject $900 billion? In other words, the U.S. national debt goes to increase by $900 billion. (Source: press release, Board of Governors of the Federal Reserve System web site, December 18, 2013.)

If the U.S. economy were on solid footing, Fed Chairperson Ben Bernanke would have created a much bigger dent in his monthly bond-buying program. Instead, he created a token gesture, as he gets able to hand over the baton to Janet Yellen early next year.