Fed looks past weak GDP, stays the course on bond tapering
Wednesday, April 30, 2014 - 02:22
April 30 - The U.S. Federal Reserve Open Market Committee blamed the weather for the lack of first quarter economic growth- choosing to taper another $10 billion from its bond buying program. Bobbi Rebell reports.
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The Fed is keeping its sunny outlook on the economy, despite a disappointing report on first quarter economic growth that blamed harsh winter weather.
The Fed will continue to reduce its bond buying program by another $10 billion , now to $45 billion- keeping it on track to end the program as soon as October. The statement did not however give any new guidance on a rise in interest rates- which they have previously said will remain near zero for a considerable time. Investors currently expect the first rate rise in the middle of next year.
Markets rose on the news- the Dow hitting a new high- something that doesn't surprise former Fed Governor Randall Kroszner:
SOUNDBITE: RANDALL KROSZNER, ECONOMICS PROFESSOR, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS (ENGLISH) SAYING:
"People are looking forward and the Fed is also looking forward. Some of the more recent data on auto sales and Chicago PMI survey suggest that we are getting some strength, we are getting some recovery from that really tough winter."
The Fed acknowledged the weather slowed the economy- but put out an upbeat statement- pointing to rising household spending.
Markus Schomer, Chief Economist at PineBridge Investments fully expected the Fed to ignore the weak GDP:
SOUNDBITE: MARKUS SCHOMER, CHIEF ECONOMIST, PINEBRIDGE INVESTMENTS (ENGLISH) SAYING:
"I'm using the word 'Goldilocks' right now because we have an environment right now where inflation is almost nonexistent but it's not falling anymore. It's well-below target but it's not falling so there's no deflation story. We have growth that's moderate. If you average out this wacky quarter, we're growing at about 2%-2.5%. There's no inflation risk in those numbers."
But - the continued tapering is the wrong decision for the wrong reasons says Reuters Columnist James Saft:
SOUNDBITE: JAMES SAFT, REUTERS COLUMNIST (ENGLISH) SAYING:
"Jeremy Stein who is leaving the Fed now has pointed out that it may be difficult for the Fed to both keep the economy going, and not create bubbles. And that perhaps the Fed should err on the side of keeping the economy stable rather than on meeting its mandates. I believe that the Fed wants to get out of QE, because they are worried about the dangers of QE and they are going ahead and doing that, even though on the other evidence the economy is not doing terribly well."
The unemployment rate remains at 6.7 percent- it's expected to fall slightly when the March report is released on Friday.
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