Fed reduces 2014 growth forecast

19 Jun 14
The US Federal Reserve has lowered its economic forecast for 2014, but continues to slow its quantitative easing programme.

The central bank cut its growth estimate of between 2.1% and 2.3% for this year, down from 2.8% and 3% it projected in March, because of a harsh winter.

Despite this, in a supplementary statement, the bank said that ‘growth in economic activity has rebounded in recent months’ since the Federal Open Market Committee met in April.

It continued: ‘The committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvements in labour market conditions.

‘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 program, the committee decided to make a further measured reduction in the pace of its asset purchases.’

Beginning in July, the Fed said it would trim its monthly assets purchases by an additional $10bn to $35bn.

It will reduce its purchases of US government debt from $20bn to $25bn each month, and cut purchases of mortgage-backed securities from $20bn to $15bn 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 purchase.

The committee also noted that it saw the risks to the outlook for the economy and the labour market as nearly balanced. However, it recognised that inflation persistently below it 2% objective could pose risks to economic performance.

 

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