FOMC Moves Forward on Tapering

 

FOMC Moves Forward on Tapering

In its first meeting this year, the Federal Open Market Committee (FOMC) voted to once again cut back on the Federal Reserve’s bond-buying program.

Starting in February, the Fed will scale its monthly purchases to a combined $65 billion, down $10 billion from January’s pace.

The call to taper the Fed’s purchases was the second in as many FOMC meetings. The vote was unanimous.

In its public statement, the committee maintained a positive view of economic activity, saying indicators points to growth in recent quarters.

“Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat,” the statement reads. “Fiscal policy is restraining economic growth, although the extent of restraint is diminishing.”

The change in language strikes a more positive tone than the December statement, in which the committee noted the extent of restraint “may be” diminishing.

While the committee noted that “[l]abor market indicators were mixed”—the only acknowledgement of December’s dismal jobs report—members held the view that “economic activity will expand at a moderate pace and the unemployment rate will gradually decline.”

The meeting was the last to be held under the leadership of Fed Chair Ben Bernanke, who will depart from his post at the end of the month. Taking over is Janet Yellen, who analysts don’t expect will stray from her predecessor’s current course.

“[W]e expect [Yellen] to stick with the plan to continue winding down the asset purchases this year and begin [to] hike the fed funds rate around mid-2015,” said Paul Ashworth, chief U.S. economist for research firm Capital Economics.

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