FedWatch: Tapering continues on pace
Fed policymakers, as expected, voted today to pare another $10 billion off monthly asset purchases, lowering to $65 billion the amount of stimulus the Federal Reserve is pumping into the economy every month via quantitative easing (QE).
In making the move, members of the policy-setting Federal Open Market Committee (FOMC) cited a pick-up in economic activity and a labor market that was “mixed’’ but continuing to improve. The “mixed’’ adjective is likely reference to December’s disappointing but weather-distorted nonfarm payrolls gain. The post-meeting statement made no mention of risks to the economic outlook arising from weakening currencies and financial market losses among several emerging-market countries that have spawned a broad equity sell-off and Treasury rally in recent weeks.
As a whole, the FOMC indicated the Fed will continue with its modest wind-down of QE, which is on pace to end by fall 2014. As they did at their last meeting, policymakers left the door open to modifying the monthly reductions in longer-term Treasury and agency mortgage-backed securities purchases depending on economic and financial market conditions. The forward guidance regarding the target federal funds rate remained unchanged, with the FOMC stating it will hold the benchmark funds rate at effectively zero “well past the time” that the unemployment rate falls below the 6.5% threshold as long as inflation continues to run below its 2% longer-run goal.
Lastly, for the first time since June 2011, the policy vote was unanimous—which may reflect some sentiment to support outgoing Chairman Bernanke at his last FOMC meeting or, more likely, broad comfort that tapering of QE remains justified by U.S. economic performance.