Fed says it will begin tapering off its stimulus in January

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(This post was last updated at 2:20 p.m. ET)

The Federal Reserve has decided to reduce by $10 billion its monthly bond-buying program beginning in January.

The Federal Reserve Open Market Committee said in a statement:

"In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month."

The report comes ahead of a 2:30 p.m. ET statement from Federal Reserve Chairman Ben Bernanke detailing the changes in the stimulus program that the central bank began in September 2012.

The FOMC said:

"The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability."

The committee said it would keep the federal funds rate of 0 to 1/4 percent "at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal."

Bloomberg reports:

"Bernanke, in the final weeks of his eight-year tenure, is curtailing the purchases that swelled the Fed's balance sheet almost to $4 trillion as he sought to put millions of jobless Americans back to work. The policy, supported by his designated successor, Vice Chairman Janet Yellen, stirred concern it risks inflating asset-price bubbles even as its economic benefits ebbed."

The policy shift comes amid November's employment report, that saw a better-than-expected 203,000 new jobs and an unemployment rate that fell to 7 percent for the first time in five years.

According to The Associated Press:

"Stocks surged after the Fed's policy statement was released, signaling investors approved of the modest tapering and the stronger pledge to keep short-term rates low for an extended time."

"The Dow Jones industrial average rose more than 150 points minutes after the announcement."

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