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Federal Reserve to stick with QE until economy strengthens
The US Federal Reserve has deferred the threat of tapering, saying it will keep its $85bn-a-month bond buying programme in place until America’s “modest” economic recovery appears stronger.
Fed chairman Ben Bernanke warned in June that it would start winding down its quantitative easing package if America's economic recovery stayed on track Photo: Getty Images
By Katherine Rushton, US Business Editor
7:44PM BST 31 Jul 2013
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In a move that will relieve many investors, the Federal Open Market Committee (FOMC) said the US economy was improving, but that economic data received over the last month suggested it has some way to go before the Fed can justify weaning America off the fiscal stimulus package that has underpinned its recovery.
“Economic activity expanded at a modest pace during the first half of the year,” the FOMC said in a statement after two days of meetings to decide what course to take. “Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated.”
Fed chairman Ben Bernanke warned in June that it would start winding down its quantitative easing package if America’s economic recovery stayed on track. Earlier this month he said it could stop QE altogether by next summer. Many economists expect the tapering to start as early as next month.
Markets have been unusually volatile since Mr Bernanke’s announcement, as investors have seized on every shred of economic data to second-guess when the Fed might begin tapering. Perversely, any signs of a strong recovery have been treated as bad news because they are expected to trigger an early end to QE. Meanwhile, data that suggest a weaker recovery are welcomed.
On Wednesday, the Fed’s lukewarm description of America’s economic come back buoyed hopes that it may not start winding back QE for a little while yet.
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“The committee will continue its [bond] purchases…and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability,” the FOMC said.
It reiterated that it is keeping a close eye on the data and will start tapering as soon as it feels America’s recovery is strong enough. However, it also made it clear that it is prepared to boost the bond-buying programme again at any point, if it feels it has wound it back too far.
“The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes…A highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens,” the FOMC said.
Federal Reserve to stick with QE until economy strengthens
The US Federal Reserve has deferred the threat of tapering, saying it will keep its $85bn-a-month bond buying programme in place until America’s “modest” economic recovery appears stronger.
Fed chairman Ben Bernanke warned in June that it would start winding down its quantitative easing package if America's economic recovery stayed on track Photo: Getty Images By Katherine Rushton, US Business Editor
7:44PM BST 31 Jul 2013
5 Comments In a move that will relieve many investors, the Federal Open Market Committee (FOMC) said the US economy was improving, but that economic data received over the last month suggested it has some way to go before the Fed can justify weaning America off the fiscal stimulus package that has underpinned its recovery.
“Economic activity expanded at a modest pace during the first half of the year,” the FOMC said in a statement after two days of meetings to decide what course to take. “Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated.”
Fed chairman Ben Bernanke warned in June that it would start winding down its quantitative easing package if America’s economic recovery stayed on track. Earlier this month he said it could stop QE altogether by next summer. Many economists expect the tapering to start as early as next month.
Markets have been unusually volatile since Mr Bernanke’s announcement, as investors have seized on every shred of economic data to second-guess when the Fed might begin tapering. Perversely, any signs of a strong recovery have been treated as bad news because they are expected to trigger an early end to QE. Meanwhile, data that suggest a weaker recovery are welcomed.
On Wednesday, the Fed’s lukewarm description of America’s economic come back buoyed hopes that it may not start winding back QE for a little while yet.
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“The committee will continue its [bond] purchases…and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability,” the FOMC said.
It reiterated that it is keeping a close eye on the data and will start tapering as soon as it feels America’s recovery is strong enough. However, it also made it clear that it is prepared to boost the bond-buying programme again at any point, if it feels it has wound it back too far.
“The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes…A highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens,” the FOMC said.
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