The Federal Reserve on Wednesday ended its monthly bond purchase programme programme - started in 2009 during the global financial crisis - amidst an upturn in US economic activity, which expanded at a moderate pace, and an improvement in labour market conditions.
The Fed had steadily cut its monthly purchases from $85 billion to $15 billion as part of a gradual withdrawal from policies launched to fight the effects of the 2007-2009 recession and breathe more life into a tepid recovery.
The FOMC said there has been a substantial improvement in the outlook for the labour market since the inception of its current asset purchase programme.
''Moreover, the committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the committee decided to conclude its asset purchase programme this month,'' the Fed stated in a release.
The Fed said it would maintain the existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing treasury securities at auction.
''Keeping the holdings of longer-term securities at sizable levels would help maintain accommodative financial conditions,'' it added.
The FOMC also decided to keep the current 0 to 0.25 per cent target range for the federal funds rate unchanged in order to provide continued support for progress toward maximum employment and price stability.
The US central bank largely dismissed recent financial market volatility, dimming growth in Europe and a weak inflation outlook as unlikely to undercut United States' progress toward its unemployment and inflation goals.
"On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing," the Fed`s policy panel said in an important departure from prior statements, which had described the slack as "significant."
"The committee continues to see sufficient underlying strength in the broader economy," it said.
While US inflation continues to run below the committee's projection of 2 per cent longer-run goal, and provided that longer-term inflation expectations remain well anchored, the Fed said, there is a possibility of a faster than anticipated rise in federal fund rate if incoming information indicates faster progress toward the committee's employment and inflation objectives than currently anticipated.
The Fed move hit US stocks which ended with marginal losses, while the yield on the 5-year US Treasury note jumped. The yield on the benchmark 10-year US Treasury note was little changed.
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.