Fed to slow down pace of asset purchases

2 May 14
The US Federal Reserve has said that it will slow its quantitative easing programme in May, trimming its monthly asset purchases by an additional $10bn to $45bn

Following its April meeting in Washington DC, the Fed’s Open Market Committee said it would reduce its purchases of US government debt from $30bn to $25bn each month, and cut purchases of mortgage-backed securities from $25bn to $20bn per month. 

The purchases have been in place since December 2008 in a bid to boost economic activity and keep interest rates low.

The committee said strengthening economic and employment conditions were behind the decision to taper asset purchases. 

‘March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.

‘Labour market indicators were mixed but on balance showed further improvement. 

‘In light of the cumulative progress toward maximum employment and the improvement in the outlook for labour market conditions since the inception of the current asset purchase programme, the committee decided to make a further measured reduction in the pace of its asset purchases.’

The committee noted that inflation had been running below its 2% objective, which it said could pose a risk to economic performance. The inflation rate in the US was recorded at 1.5% through the 12 months ending in March 2014. The committee said it would monitor inflation developments carefully for evidence that rates were moving back towards its objective. 

It added that if improvements in labour market conditions persist and inflation moved back toward its objective, the committee would likely reduce the pace of asset purchases in further measured steps at future meetings. 

‘However, asset purchases are not on a preset course, and the committee’s decisions about their pace will remain contingent on the committee’s outlook for the labour market and inflation as well as its assessment of the likely efficacy and costs of such purchases,’ it stated.

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