Fed cuts stimulus as expected; Bernanke prepares to depart

By Jonathan Spicer and Jason Lange

WASHINGTON (Reuters) - The U.S. Federal Reserve on Wednesday announced a further $10 billion reduction in its monthly bond purchases as it stuck to a plan to wind down the extraordinary stimulus despite recent turmoil in emerging markets.

Fed Chairman Ben Bernanke, who hands the central bank's reins to Vice Chair Janet Yellen on Friday, also adjourned his last policy-setting meeting without making any changes to the U.S. central bank's other main policy plank: its longer-term plan to keep interest rates low for some time to come.

The Fed acknowledged that "economic activity picked up in recent quarters, in a statement after the two-day meeting, a nod to the broader U.S. economic strength that prompted it to decide last month to begin reducing the asset purchase plan.

Starting in February, the Fed will buy $65 billion in bonds per month, down from $75 billion now. It shaved its purchases of U.S. Treasuries and mortgage bonds equally.

The decision received unanimous backing from Fed policymakers.

Overall signs of improvement in the U.S. economy suggested they would stay on track to cut the purchases in line with what Bernanke predicted would be "measured" steps until the program was shelved later in the year.

A selloff in emerging market currencies and stocks in recent days, and disappointing U.S. job growth in December, did not deter Fed officials.

The meeting is Bernanke's last before Vice Chair Janet Yellen moves into the top spot.

He took the Fed far into uncharted territory during his eight years on the job, building a $4 trillion balance sheet and keeping interest rates near zero for more than five years to pull the economy from its worst downturn in decades.

Policymakers on Wednesday stuck to their promise to keep rates near zero until well after the U.S. unemployment rate, now at 6.7 percent, falls below 6.5 percent, especially if inflation remains below a 2-percent target.

With concerns growing over possible harm from so much money printing, the Fed decided last month to make its first cut to the bond buying.

Data in recent weeks, from consumer spending and confidence to industrial production, was largely upbeat and has bolstered the view of an improving economy. Forecasters estimate U.S. GDP grew at an above-trend annual rate of 3.2 percent in the fourth quarter after notching a 4.1 percent advance in the prior three months.

The show of strength provides a welcome backdrop for Bernanke, who steps down on Friday after an unusually tumultuous and highly experimental stint atop the world's most influential central bank.

(Editing by Paul Simao)