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Fed's $10 Billion Stimulus Cut Explained

Raishad Hardnett |
January 29, 2014 | 7:00 p.m. PST

Executive Producer

The Fed cited a growing economy as the reason for the coming stimulus cuts. (Image via Creative Commons)
The Fed cited a growing economy as the reason for the coming stimulus cuts. (Image via Creative Commons)
U.S. investors aren't exactly the happiest they've ever been. 

In Ben Bernanke's last policy meeting as Federal Reserve chairman, the Federal Reserve announced on Wednesday its intentions to cut its monthly bond purchases by $10 billion. 

What does that mean? It's a move that may help to curb inflation in the future, it and signifies confidence in a growing economy -- but it also promises an interest rate hike, making investment less lucrative for U.S. investors. 

The move was largely anticipated by investors, but -- as normally occurs whenever the Fed chairman opens his mouth -- the markets reacted almost immediately.

Standard & Poor's 500 index dropped by 1 percent, the Dow Jones fell by 1.2 percent, and the NASDAQ dropped by 1.1 percent. 

As Bernanke gives his seat up to the newly appointed Fed chairman Janet Yellen, investors are expecting continued cuts to the central bank's bond-backed stimulus program -- and perhaps for good reason: Job growth increased by about 2 million jobs in both 2013 and 2012, an indication of steady gains after 8.7 million jobs that the Great Recession wiped out. 

Click here for more coverage about the markets' reaction to the Fed's stimulus program. Contact Executive Producer Raishad Hardnett here



 

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