US interest rate-setting body, the Federal Open Market Committee (FOMC), decided last Wednesday to start reducing its bond-buying programme from January next year and monthly asset purchases will be reduced by $10 billion to $75 billion.

Federal Reserve (Fed) chairman Ben Bernanke said the Fed will take “similar moderate steps” throughout next year to reduce asset purchases further if the economy shows continued improvement.

Though the Fed will cut back on bond purchases, it plans to hold its key short-term interest rate at close to zero at least until the unemployment rate falls below 6.5 per cent.

The bond-buying programme, also known as quantitative easing, or QE, was launched 15 months ago to kick-start employment and growth in the US economy.

In the meantime, the eurozone Purchasing Managers’ Index (PMI), an index that is based on a survey of purchasing managers in the manufacturing industry, shows that in December, factory output in the region grew at a faster rate than many economists had forecasted.

According to Markit Economics, the index increased to 52.7, a 31-month high, from 51.6 in November. This is above the estimate of 51.9 in a Bloomberg News survey and was led by Germany.

The improved manufacturing index shows that the currency bloc continued its gradual recovery from a record-long recession. In the meantime, eurozone inflation increased to 0.9 per cent year-on-year in November from 0.7 per cent in October.

In the UK, during the three months to last October, unemployment fell to its lowest level since April 2009, dipping to 7.4 per cent from 7.6 per cent in the July-September period, according to the International Labour Organisation.

In the meantime, the consumer price inflation (CPI) weakened to 2.2 per cent in November from 2.7 per cent the previous month, and dropped closer to the Bank of England’s target of two per cent. Economists surveyed by Bloomberg News called for November inflation to read 2.2 per cent.

This article was compiled by Bank of Valletta for general information purposes only.

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