Arab Today, arab today us fed may hike rates next spring taper continues apace
Last Updated : GMT 07:38:30
Arab Today, arab today
Arab Today, arab today

US Fed may hike rates next spring, taper continues apace

Arab Today, arab today

Arab Today, arab today US Fed may hike rates next spring, taper continues apace

Washington - XINHUA

The Federal Reserve has signaled it may raise the federal interest rate as early as next spring, depending on conditions, and says the economy is firm enough to keep the taper on course. The Federal Open Market Committee (FOMC) concluded its two-day meeting Wednesday, and decided to continue trimming the monthly bond buying by 10 billion U.S. dollars to 55 billion dollars in April, a similar pace to that in the past two months, according to a statement released after the meeting. The Fed reaffirmed that a highly accommodative stance of monetary policy remained appropriate, while dropping the jobless rate threshold for tightening policy. While the Fed signalled a change in its view of interest rates settings, chair Janet Yellen said in response to questions at a post-meeting press conference the first lift in rates could happen about six months after tapering ends this fall. Yellen's remarks drove U.S. stocks lower Wednesday, as investors feared the earlier-than-expected rates hike signal may hurt the fragile economic recovery. TAPER CONTINUES, ECONOMY IMPROVES Growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions, according to the Fed statement, indicated by soft data on retail sales, home construction and job creation. "Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated," it said. The committee expected, with appropriate policy accommodation, economic activity would expand at a moderate pace and labor market conditions would continue to improve gradually. Judging there was sufficient underlying strength in the broader economy, the Fed decided, beginning in April, to add to its holdings of agency mortgage-backed securities at a pace of 25 billion dollars per month rather than 30 billion dollars, and add to its holdings of longer-term Treasury securities at a pace of 30 billion dollars rather than 35 billion dollars. The Fed forecast the economy to grow 2.8-3 percent in 2014 and 3-3.2 percent in 2015. The unemployment rate would drop to 6.1-6.3 percent this year, and to 5.6-5.9 percent in 2015. It left its view of inflation largely unchanged, saying it could be as high as 1.6 percent this year and 2 percent next. RATES HIKE ON THE HORIZON The Fed, as anticipated, updated its interest rate guidance on Wednesday by dropping the jobless rate threshold for tightening policy. Unemployment has been nearing the target of its previous guidance, but the Fed remains cautious about whether the economy is strong enough to embrace a rates hike. The committee said it believed it would be appropriate to maintain the current target range for the federal funds rate for a "considerable time" after the asset purchase program ended, especially if projected inflation continued to run below the committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. The committee currently anticipated, even after employment and inflation were near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee viewed as normal in the longer run. At the press conference, Yellen said of the likely timing of any tightening: "So, the language that we use in this statement is 'considerable,' period. So, I - I, you know, this is the kind of term it's hard to define, but, you know, it probably means something on the order of around six months or that type of thing." "But, you know, it depends - what the statement is saying is it depends on what conditions are like. We need to see where the labor market is, how close are we to our full employment goal. That will be a complicated assessment, not just based on a single statistic," she said.

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