All eyes on the Federal Reserve as it ponders when to cut stimulus

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The Federal Reserve’s last policy meeting of the year, which started on Tuesday, is the focus of the financial markets.

Chairman Ben Bernanke and the others at the top table at the US central bank will certainly be discussing reducing their massive monetary stimulus during the two-day meeting.

The question is will they make even a small cut to their purchases of $85 billion a month of bonds?

That is a possibility because of some recent robust US economic data, combined with last week’s budget deal by politicians in Washington.

Key numbers including employment, retail sales and industrial production have all pointed to an economy that is on an upswing.

A bounce back in the annual US inflation rate from a four-year low could give the Fed cover to start dialing back that stimulus.