Fed trims QE, stocks jump

The Federal Reserve decided to trim the pace of its bond purchases at its monetary policy meeting on Wednesday. Bloomberg reports:

The Federal Reserve is trimming its monthly bond purchases to $75 billion from $85 billion, taking the first step toward unwinding the unprecedented stimulus that Chairman Ben S. Bernanke put in place to help the economy recover from the worst recession since the 1930s.

“Reflecting cumulative progress and an improved outlook for the job market, the committee decided today to modestly reduce the monthly pace at which it is adding to the longer-term securities on its balance sheet,” Bernanke said at a press conference in Washington today after a meeting of the Federal Open Market Committee.

The decision had apparently been more than priced into markets. Stocks rose, with the S&P 500 rising by 1.7 percent on Wednesday.

The Fed decision was supported by US economic data on Wednesday. Housing starts jumped 22.7 percent in November to the most since February 2008.

There were also positive data from Europe. In Germany, the Ifo business climate index rose to 109.5 in December from 109.3 in November. In the UK, the unemployment rate fell to 7.4 percent in the three months to October from 7.6 percent a month earlier.

However, earlier in the day, Japan reported a record November trade deficit. Exports rose 18.4 percent from a year earlier while imports rose 21.1 percent, resulting in a 35.1 percent increase in the trade deficit.