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Fed to begin reversing its huge stimulus program

Federal Reserve Chair Janet Yellen testifies before Congress. Photo: Pablo Martinez / AP

The Federal Reserve will begin reducing the stock of government and mortgage bonds it amassed to help drive down interest rates and stabilize the housing market in the aftermath of the financial crisis, a move that signals the central bank's growing confidence in the U.S. economy.

Steady as she goes: The Fed will shrink the value of its portfolio of bonds by just $10 billion per month, a fraction of its $4.5 trillion stockpile. The modest nature of the move reflects the Fed's recognition that despite historically low unemployment rates, wage growth has been tame and inflation remains below the bank's 2% annual target.

An earlier version of this post incorrectly stated the Federal Reserve is "selling off" bonds when, in fact, it is reducing its portfolio by declining to reinvest returned principal of bonds held to maturity.

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