WASHINGTON (dpa-AFX) - After seeing initial strength, treasuries moved lower over the course of the trading day on Wednesday as traders reacted to the Federal Reserve's monetary policy announcement.
Bond prices climbed off their worst levels going into the close but remained in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3 basis points to 1.579 percent.
The lower close by treasuries came after the Fed announced its widely expected decision to begin scaling back its asset purchases later this month.
The Fed said it plans to reduce its $120 billion in monthly bond purchases by $15 billion per month, citing the substantial further progress the economy has made toward its goals of maximum employment and price stability.
After reducing asset purchases by $15 a month this month and next, the Fed expects similar reductions in the pace of net asset purchases will likely be appropriate each month but said it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.
In the statement announcing the decision, the Fed said indicators of economic activity and employment have continued to strengthen amid progress on Covid-19 vaccinations and strong policy support.
The statement also acknowledged supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors, although the Fed continued to describe the factors leading to elevated inflation as transitory.
The Fed noted risks to the economic outlook remain but predicted progress on vaccinations and an easing of supply constraints would lead to continued gains in economic activity and employment as well as a reduction in inflation.
Along with the plan to begin reducing its asset purchases, the Fed also announced its widely expected decision to keep the target range for the federal funds rate at 0 to 1/4 percent.
The central bank said it expects interest rates to remain at near-zero levels until labor market conditions have reached levels consistent with its assessments of maximum employment and inflation is on track to moderately exceed 2 percent for some time.
In his post-meeting press conference, Fed Chair Jerome Powell stressed that the decision to begin tapering asset purchases does not reflect a direct signal regarding interest rate policy.
'We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate,' Powell said.
Powell argued there is still ground to cover to reach maximum employment both in terms of employment and participation.
The Fed announcement largely overshadowed separate reports showing stronger than expected private sector job growth as well as record service sector growth.
Reports on weekly jobless claims, the trade deficit and labor productivity may attract attention on Thursday, although traders may look ahead to the more closely watched monthly jobs report on Friday.
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