THE U.S. Federal Reserve on Wednesday ended its monthly bond purchase program and dropped a characterization of U.S. labor market slack as “significant” in a show of confidence in the economy’s prospects.

    In a statement after a two-day meeting, the U.S. central bank largely dismissed recent financial market volatility, dimming growth in Europe and a weak inflation outlook as unlikely to undercut progress toward its unemployment and inflation goals.

    U.S. stocks added to earlier losses after the statement but came back to close down only marginally, while the yield on the 5-year U.S. Treasury note jumped, putting it on track for its biggest one-day increase since mid-March. The dollar rose to a three-week high against a broad basket of currencies as traders pulled forward expectations of when the Fed would eventually raise interest rates. The Fed has held rates near zero since December 2008 and has more than quadrupled its balance sheet to US$4.4 trillion through three separate asset purchase programs.

    “The market is saying that the Fed has now stepped closer to tightening interest rates because of the labor market,” said Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Connecticut.

    While the central bank retained its basic guidance that overnight borrowing costs would remain near zero for a “considerable time” following the end of bond purchases this month, the new phrase marks a turn towards a new regime.

    Like investors, economists generally saw the new language as having a slightly hawkish tilt, downplaying risks the recovery will ebb and sticking with the underlying forecast of moderate U.S. economic growth and steady improvement in the job market.

    (SD-Agencies)