Fed's taps are still going off but interest rates remain near zero

Janet Yellen incoming Chairperson of the Federal Reserve

Top Fed officials believe their decision last month to reduce the pace of the U.S. central bank’s bond-buying stimulus was well received by financial markets. That, in turn, allows them to make another $10 billion cut to the bank’s monthly bond purchases at the January 28-29 meeting without needing to adjust their promise to keep interest rates low in the future.

As the promise stands, the Fed has said it expects to keep rates near zero until well past the time unemployment falls below 6.5 percent, especially if inflation remains low. Joblessness dropped faster than expected last year and hit 6.7 percent in December, down from 7.0 percent the previous month.

Had the drop in unemployment sparked a sell off in bonds, the Fed might have reinforced its commitment to stimulus by tampering with its low-rates promise. But investors appear to have interpreted the data as a one-off event that would not prompt a quicker-than-expected policy tightening.