The U.S. Federal Reserve wrapped up a two-day policy meeting Wednesday at 2 p.m. with little fanfare and little investor reaction. There was no press conference or updates to the central bank’s economic forecasts following the Federal Open Market Committee (FOMC) meeting this month - just a news release.
That made it quieter than March’s meeting, when new Fed Chair Janet Yellen unintentionally surprised and spooked investors with talk of an interest rate increase before year’s end.
No surprises were expected Wednesday afternoon, and no surprises were delivered. Markets reacted in kind. Benchmarks were little changed ahead of the Fed’s statement and modestly higher after.
As widely anticipated, the FOMC continued with the winding down of its quantitative easing bond purchases. For the fourth time in as many meetings, the committee trimmed its asset purchases by another $10 billion to $45 billion a month.
The Fed has been buying bonds since December 2008, with a goal of stimulating a struggling U.S. economy. Yet amid signs of an improving economic landscape, the Fed started weaning the economy off this stream of money in January.
The taper continues despite inconsistent job growth and a stubbornly elevated 6.7% unemployment rate.
“The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions,” according to the policy statement.
Also acknowledged in the FOMC statement was the recent spate of lackluster fiscal data, which the Fed attributed to an unusually harsh winter. But the Fed sees things improving (although we all know that relying on government-reported data results in a distorted image).
“Growth in economic activity has picked up recently, after having slowed sharply during the winter because of adverse weather conditions,” the statement read.
The Fed confirmed it will continue to monitor economic data and financial developments and proceed accordingly.
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Several analysts speculated that Wednesday’s first read on Q1 2014 gross domestic product (GDP) might sway the Fed to change its stance and hold off on a taper this month. GDP, the broadest measure of the U.S. economy, grew at a meager 0.1% annual pace in the first quarter, data from the U.S. Bureau of Economic Analysis showed. Economists had foreseen tepid growth amid a brutal winter, but the results were much worse than expected. Consensus forecasts were for 1.2% growth.
Also as expected, the FOMC said that the near-zero interest rate environment will continue for some time.
The Fed reaffirmed its projected timeline for increasing interest rates, stating, “it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase programs ends.”
At the current pace, the program will end before the end of the year. The Fed, however, will move slowly and cautiously in regard to raising interest rates.
“When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” the statement said.
The next read on the health of the U.S. economy comes Friday with the closely watched April jobs report.
So what does all this mean for investors?
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