News Column

REPEAT: Fed Tapers, Most Members See Rate Hike In 2015

June 18, 2014

WASHINGTON (Alliance News) - The Federal Open Market Committee on Wednesday reduced the pace of monthly asset purchases by USD10 billion to USD35 billion, as expected.

The central bank will add to its holdings of agency mortgage-backed securities at a pace of USD15 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of USD20 billion per month.

Additional tapering is likely if the labor market continues to show improvement and inflation picks up, the Fed said in a statement accompanying its decision.

With the economy rebounding after a rough patch during the winter, the Fed is now on pace to halt bond buying altogether within the next few months.

Household spending appears to be rising moderately and business fixed investment resumed its advance, while the recovery in the housing sector remained slow.

However, policymakers remain concerned that inflation is running persistently below its 2% objective. In accordance with its mandate to promote price stability, the Fed said it will keep its benchmark interest rate near zero "for a considerable time after the asset purchase program ends."

Only one of 16 officials thinks rates should rise this year, while 12 think 2015 will be appropriate.

Fed Chair Janet Yellen said a post-decision press conference that the Fed will look at a "range of indicators" on jobs before deciding to raise rates.

The Fed also released new quarterly forecasts for unemployment, inflation and economic growth.

The Fed slashed its outlook for full-year economic growth, cutting gross domestic product from a 2.8% to 3% range seen in March down to 2.1% to 2.3%. A one percent drop in first quarter GDP forced the significantly revised outlook.

On the other hand, the Fed lowered its unemployment rate expectations, from 6.1% to 6.3%, down to 6.0 to 6.1%.

Inflation projections remained relatively stable, from 1.5% to 1.6%, adjusting the top end a bit to 1.5% to 1.7%.

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Source: Alliance News

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