Fed Keeps QE Pace Unchanged - Real Time Insight


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The Federal Reserve just concluded their most anticipated meeting of the year and released an official  statement .

As this was a quarterly meeting, they also provided an update to their economic forecasts and the chairman is currently holding a press conference.

Most market participants did not expect any change in the direction of the monetary policy. And as expected, they decided to continue their bond purchases at the current pace of $85 billion per month.

However the focus was on what they said about the economy and the labor market and any signals in the statement about the future direction of the monetary policy.

Here is what the statement said about the economy: " economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated "

About the asset purchase program: " The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. "

They decided to keep the target range for the fed funds rate between 0% and 0.25%-- as long as the unemployment rate remains above 6.5% and medium-term inflation does not exceed 2.5%--unchanged.

The action was supported by 10 members of FOMC, with dissent from James Bullard and Esther George.

Looking at the economic projections, there is not much change in 2013 projections but the committee is much more optimistic about 2014 now, with slightly higher GDP growth and slightly lower unemployment rate.

June Projection

March Projection






Change in Real GDP

2.3 to 2.6

3.0 to 3.5

2.3 to 2.8

2.9 to 3.4

Unemployment Rate

7.2 to 7.3

6.5 to 6.8

7.3 to 7.5

6.7 to 7.0

Core Inflation

1.2 to 1.3

1.5 to 1.8

1.5 to 1.6

1.7 to 2.0

Interestingly, last week the IMF had cut its forecast for US GDP growth in 2014 to 2.7% from 3.0% and maintained the 1.9% rate for 2013. In comparison, FOMC's projections look much rosier.

Bernanke's press conference has started and it would be interesting to see if he is able to provide more clarity about the future direction of the policy.  

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