The taper is continuing, and interest rates are going to stay low for a while yet. But the economy is going to grow way more slowly this year than we thought just a few months ago.
Federal Reserve maintains taper, cuts growth forecast
That’s the sum of what the Federal Reserve’s Open Market Committee said after its most recent two-day meeting, according to a statement released Wednesday afternoon. The committee continued to taper its third round of quantitative easing, or QE3, a stimulus program in which the government makes large asset purchases each month.
Originally announced at $85 billion per month, QE3 has been slowly tapered down by $10 billion at each Fed meeting since December 2013. In this meeting, the FOMC decided that starting in July, the Fed will start buying $35 billion in treasuries and mortgage-backed securities each month, down from the current $45 billion.
The committee also signaled it would hold interest rates low until well after QE3 ends, which at the current rate will come near the end of this year. According to its statement, the FOMC still thinks it will keep the federal funds rate near zero “for a considerable time after the asset purchase program ends.” That’s the same language the committee used in its March and April statements.
The FOMC also adjusted its forecast for this year’s economic growth down sharply. The central tendency of members’ estimates for 2014 GDP growth came in at 2.1 to 2.3 percent, down from the 2.8 to 3.0 percent they forecasted in March. The sharp pullback in GDP growth in the first quarter likely played a large part in this.
Not that FOMC members were altogether pessimistic. The statement noted that economic growth has “rebounded” and that fiscal policy’s drag on growth is diminishing. In addition, members’ central estimates for 2015 and 2016 growth remained unchanged.
In short, the Fed had few surprises in its June statement. But Fed watchers will be watching closely in the coming months to see when the central bank will give a bit more information on when it will raise the federal funds rate.
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