The Federal Reserve will likely phase out its massive bond-buying stimulus this year if the U.S. economic recovery strengthens as expected, a top Fed official said on Tuesday, but it is still far from any thought of hiking interest rates.
With unemployment, at 7 percent, well above healthy levels and inflation undesirably low, the economy needs continued stimulus from the central bank, San Francisco Federal Reserve Bank President John Williams said in remarks prepared for delivery to the Arizona Bankers Association.
"I want to stress that scaling back on asset purchases is not a retreat from accommodative monetary policy,'' Williams said. "We're starting to ease off the gas, but we're nowhere near hitting the brakes yet.''
The Fed has kept short-term interest rates near zero for more than five years and has swollen its balance sheet to an unprecedented $4 trillion through a series of bond-buying programs. The Fed's asset purchases, known as quantitative easing, are aimed at lower borrowing costs to spur investment and hiring after the worst downturn in decades.
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Last month, amid unmistakable signs of a quickening recovery, the Fed took a first step toward dialing down that stimulus by trimming its $85 billion-a-month bond-buying program to $75 billion.