WASHINGTON — The Federal Reserve on Wednesday agreed to softly pare back its asset purchases by $10 billion, taking the first step in unwinding its controversial bond buying program.

After a two-day Federal Open Market Committee meeting, officials said they decided to "modestly reduce the pace" of its monthly bond buying program to $35 billion in mortgage bonds and $40 billion in Treasury bonds starting in January.

Economists have been divided whether the economy is strong enough to begin reducing its quantitative easing program. The previous schedule had been for $40 billion of mortgage-backed securities and $45 billion of longer-term Treasuries.

"Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy," according to a statement by policymakers.

The Fed said it will continue to monitor economic and financial developments in coming months, and if sustained improvement continues, the FOMC would "likely" reduce the pace of their asset purchases further in "measured steps" at future meetings.

Still, the committee stressed again that asset purchases are not a "preset course" and decisions will be based on economic outlooks.

The committee said it expects its "sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery, and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate."

The FOMC continued to keep the federal funds rate level near the zero bound, which it said would be "appropriate as long as the unemployment rate remains above 6.5%" and inflation is no higher than half a percentage point above its 2% target over the next two years.

"The committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the committee's 2% longer-run goal," according to the statement.

Donna Borak is the Federal Reserve reporter for American Banker.