Fed minutes: Fed reduced bond buys after seeing big job gains, worried about market reaction

WASHINGTON – The Federal Reserve agreed last month to modestly reduce its bond purchases by $10 billion a month after seeing stronger job gains and other signs of an improving economy.

But minutes of the December 18-19 meeting show some participants worried that financial markets might misread the move as a step toward raising its key short-term interest rate.

The bond purchases are intended to keep long-term rates low.

In response, the Fed said it would keep its short-term rate low “well past” the time the unemployment rate dropped below 6.5 per cent, as long as inflation stayed low.

Some members wanted to lower the unemployment threshold to 6 per cent. But the majority wanted to make no change to the threshold.