FOMC Further Reduces Tapering by $10 Billion; Federal Funds Rate Unchanged

In its latest press release, the Federal Reserve System has revealed the latest monetary policy decisions taken by the Federal Open Market Committee. The biggest news is that the FOMC decided that the Open Market Trading Desk will purchase additional agency mortgage-backed securities at a pace of $15 billion per month and longer-term Treasury Securities -at $20 billion per month, starting next month. This means that the Fed has reduced the volume of securities by a total of $10 billion, from $20 billion in mortgage-backed and $25 billion in longer-term Treasury securities. At the previous meeting, the FOMC has also tapered by $10 billion.

US Dollar Bill Currency Money

The FOMC made the decision considering that the broader economy is strong enough to support the improvement in the labor market. However, it also said in the statement that the economic growth has picked up in recent months, the unemployment rate is still elevated, while the recovery in the housing sector is progressing slowly.

“Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable,” the statement added.

At the same time, the Committee stated that inflation, which currently is below the 2% target, could be a risk for the economic growth. Overall, they expect that the economy will continue to expand and the labor market will improve. The FOMC has “reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate.” The current federal funds rate, between 0 and 1/4 percent has also remained unchanged, and the Committee will take into account the progress of the economy towards the 2% inflation and maximum employment for assessing the timeframe for the rates.

“This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”

 

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