Improving economy leads Federal Reserve to ease stimulus

WASHINGTON – The Federal Reserve on Wednesday sent its strongest signal of confidence in the U.S. economy since the Great Recession, deciding that the nation’s economic prospects are bright enough to withstand a slight pullback in stimulus spending.

Yet the Fed also made clear that it will keep supporting an economy that remains less than fully healthy. It will continue to keep interest rates low and try to boost unusually low inflation, which can be a drag on spending and borrowing.

At his final news conference as Fed chairman before he leaves in January, Ben Bernanke managed a delicate balance: He announced a long-awaited and long-feared reduction in the stimulus. Yet he did so while convincing investors that the Fed would continue to bolster the economy indefinitely. Wall Street roared its approval.

In a statement after a two-day policy meeting, the Fed said it would trim its $85 billion a month in bond purchases by $10 billion starting in January. Bernanke said the bank expects to make “similar moderate” cuts in its purchases if economic gains continue.

At the same time, the Fed strengthened its commitment to record-low short-term rates. It said for the first time that it plans to hold its key short-term rate near zero “well past” the time when unemployment falls below 6.5 percent. The rate is now 7 percent.

The Dow Jones industrial average soared nearly 300 points. Bond prices fluctuated, but by late afternoon the yield on the 10-year Treasury note had barely moved, inching up to 2.89 percent from 2.88 percent.