August 24, 2014

FOMC decides to taper another $10B

July 31, 2014 – After its two-day meeting, the Federal Open Market Committee put out a statement announcing it would slow asset purchases by an additional $10 billion per month in August to a pace of $25 billion per month.

NAFCU Senior Economist Curt Long analyzed the FOMC statement for a Macro Data Flash. He said the Fed will slow its purchases of mortgage-backed securities to a pace of $10 billion a month – down from $15 billion – and of longer-term Treasury securities to a pace of $15 billion per month – down from $20 billion. The federal funds rate target remains at a range of 0 to 0.25 percent.

"The committee acknowledged that economic growth rebounded in the second quarter, and labor market conditions continued to improve," Long wrote. "The committee also sees risks to the outlook for the economy and labor market as nearly balanced and that the likelihood of inflation running persistently below 2 percent has diminished somewhat. It is not expected that the committee will increase short-term rates this year, but the pressure to do so will increase after the asset purchase program ends in October if economic and inflationary trends continue on their current paths."

Long said the Fed plans to maintain its policy of reinvesting principle payments and rolling over maturing Treasury securities.