January 29, 2014

Fed to slow asset purchases another $10 billion

Jan. 30, 2014 – The Federal Open Market Committee announced the Fed will begin tapering its asset-purchase program by another $10 billion a month but is leaving its federal funds rate target unchanged for now.

The committee said it would slow its purchases of additional agency mortgage-backed securities to a pace of $30 billion a month (down from $35 billion) and its purchases of longer-term Treasury securities to $35 billion a month (down from $40 billion). The announcement came after the close of a two-day policy-setting meeting.

In a NAFCU Macro Data Flash, Senior Economist Curt Long wrote, "In language that echoed their previous statement, the committee acknowledged that economic growth has picked up in recent quarters and the labor market indicators were mixed but on balance showed further improvement, but they noted that the ‘recovery in the housing sector slowed somewhat.' The committee also sees risks to the outlook for the economy and labor market as having become more nearly balanced.

"The committee anticipated that it will be appropriate to maintain the current target range for the federal funds rate ‘well past' the time that the unemployment rate declines below its target of 6.5 percent, especially if projected inflation continues to run below the 2 percent longer-run goal," Long continued.

The committee decided to reduce the Fed's asset purchases by $10 billion a month in December, to $75 billion a month.

This week's FOMC meeting was the last for Ben Bernanke, whose term as Fed Board chairman expires Jan. 31. Janet Yellen, currently vice chair, is set to succeed him Feb. 1.