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US Federal Reserve continues trimming stimulus efforts US Federal Reserve continues to slow monthly bond-buying
(35 minutes later)
The US Federal Reserve announced a further reduction of its stimulus efforts, after a two-day meeting in Washington. The US Federal Reserve has announced a further reduction of its economic stimulus efforts, after a two-day meeting in Washington.
The central bank said it would continue trimming its monthly bond-purchases by an additional $10bn (£5.9bn) to $45bn.The central bank said it would continue trimming its monthly bond-purchases by an additional $10bn (£5.9bn) to $45bn.
The bank has been buying bonds to keep long-term interest rates low and stimulate economic activity.The bank has been buying bonds to keep long-term interest rates low and stimulate economic activity.
Fed chair Janet Yellen said the bank will continue to support the US economy for as long as is necessary. Fed chair Janet Yellen said the bank will continue to support the US economy for as long as it deems necessary.
The continued cut-down in stimulus measures came on the same day official figures showed the US economy grew at an annual rate of just 0.1% in the first quarter of 2014.The continued cut-down in stimulus measures came on the same day official figures showed the US economy grew at an annual rate of just 0.1% in the first quarter of 2014.
However, the Fed said in its statement that it believed "growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions."However, the Fed said in its statement that it believed "growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions."
It also noted that household spending appears to be "rising more quickly," but that business investment had slowed.It also noted that household spending appears to be "rising more quickly," but that business investment had slowed.
US markets largely shrugged off the news of a continued slowdown in the Fed's stimulus efforts, with the Dow Jones, Nasdaq, and S&P 500 all slightly up for the day.US markets largely shrugged off the news of a continued slowdown in the Fed's stimulus efforts, with the Dow Jones, Nasdaq, and S&P 500 all slightly up for the day.
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Although severe winter weather was largely to blame for the sluggish first quarter growth figure, many economists nonetheless expect the US economy will grow at a sub-3% pace in 2014, below the historical post-war average.Although severe winter weather was largely to blame for the sluggish first quarter growth figure, many economists nonetheless expect the US economy will grow at a sub-3% pace in 2014, below the historical post-war average.
That has led many to believe that the Fed will continue to keep interest rates low, even once it has completely stopped its bond-buying programme, known as quantitative easing. Consequently, many believe that the Fed will continue to keep interest rates low, even once it has completely stopped its bond-buying programme, known as quantitative easing.
The Fed has kept its key benchmark interest rate at 0% since 2008, when the financial crisis caused the central bank to engage in a series of extraordinary measures intended to boost the US economy. The Fed has also said as much, noting in its statement that it planned to keep interest rates "below levels the committee views as normal in the longer run" even after the US economy has improved enough to hit target levels of unemployment and inflation.
The Fed has also said as much, noting once more in its statement: "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." The central bank has kept its key benchmark interest rate at 0% since 2008, when the financial crisis caused the central bank to engage in a series of extraordinary measures intended to boost the US economy.
Ms Yellen has indicated that while the Fed expect US growth to pick up steam, it remains prepared to act should conditions change - as they have often since 2008. The commitment to keep rates low shows that "while the policy normalisation is underway, the Fed is in no rush to complete the process," said Ward McCarthy, chief US economist at Jefferies bank.
"While monetary policy discussions naturally begin with a baseline outlook, the path of the economy is uncertain, and effective policy must respond to significant unexpected twists and turns the economy may take," she said recently in a policy address at the Economic Club of New York. And that slow pace is deliberate: Ms Yellen has indicated that while the Fed expect US growth to pick up steam, it remains prepared to act should conditions change - as they often have since 2008.
"The path of the economy is uncertain, and effective policy must respond to significant unexpected twists and turns the economy may take," she said recently in a policy address at the Economic Club of New York.
Ms Yellen added that the recovery has been "disappointingly slow" and that the Fed's projections for a pickup in growth have been "dashed" several times.Ms Yellen added that the recovery has been "disappointingly slow" and that the Fed's projections for a pickup in growth have been "dashed" several times.