The following is Barclays Capital's first reaction to today's FOMC policy decision.
"The Federal Reserve announced a reduction in the pace of its asset purchases in December, saying that the pace of purchases would decline to $75bn per month beginning in January from the current $85bn pace. The committee is reducing its Treasury and agency MBS purchases by $5bn apiece, leaving the new purchase rates at $40bn and $35bn per month, respectively.
The decision to taper went against our expectation of no change in the policy stance, but we had been highlighting that the incoming data since the September meeting raised the risk of a tapering in December and we felt the decision was close to a coin toss entering the meeting.
We did believe that the committee would strengthen its forward guidance if it decided to taper, particularly given the sharp fall in the unemployment rate in recent months. We read the December statement as imposing a “soft” inflation floor in its policy rate guidance. The statement says the committee “anticipates” that it will keep the policy rate within its current target range “well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.” This is not as strong as saying the committee will refrain from raising rates until its inflation projections are at or above their longer-run target, but it does provide more guidance that the committee is prepared to let the unemployment rate drift lower if inflation remains subdued."
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