Federal Reserve accelerates taper

The Federal Reserve will reduce asset purchases to $65bn in February. 

The US Federal Reserve decided to decrease monthly purchases of long term Treasury securities and mortgage-backed securities to $65 billion, a $10 billion reduction from its purchases in January, according to a statement released by its Board of Governors Tuesday.

The $10 billion decrease will be split evenly between mortgage-backed securities and Treasuries, according to the statement.

The Fed cited ongoing improvements in the unemployment rate and advances in household spending and business fixed investment as instrumental in its decision.

Although certain economic indicators have improved, the rate of inflation remains below the Fed’s 2 percent objective. The Fed will continue to hold federal funds rates at historic lows, between 0 and 0.25 percent.

“A highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens,” according to a statement.

The Federal Reserve launched its tapering programme in January when it reduced monthly asset purchases to $75 billion. The central bank had pursued $85 billion in monthly purchases in each of the 15 months leading up to the taper.

A reduction in asset purchases will likely carry significance in the high yield market. The Fed’s initial tapering announcement in June 2013 corresponded with a spike in long-term Treasury yield curves, which in turn led to a sharp decline in high yield issuance for the month.