The US Federal Reserve has indicated that it will soon cut the interest rate on deposits of banks with the central bank.

The central bank of the world's largest economy did not say as to when the quantitative easing might be reduced but the move is expected in the coming months. Federal Open Market Committee, which sets the interest rates for the central bank, has indicated that it will consider alternatives and might suggest slowing its buying of bonds.

Federal Reserve officials have said that the US economy has been recovering strongly and this might convince the central bank in the country to consider cutting back its fiscal stimulus package. The US economy is showing strong recovery following labor market improvements and stronger-than-expected growth in the third quarter growth.

Cutting the extra interest on reserves that banks hold with the Federal Reserve will reduce the interest rates further and this might affect bank profits but increase stimulus to the economy. FOMC officials believe that it would send the right signal when the central bank starts slowing down its bonds buying programme. The Fed had an extensive discussion of policy plans at its October meeting and is looking to offset reduced purchases with a new form of easing.