Federal Reserve continues tapering program

For Federal Reserve officials, $10 billion is once again the magic number.

That's how much the Federal Open Market Committee, which sets monetary policy, moved Wednesday to reduce its bond purchases by following a two-day meeting in Washington. The decision came despite weaker-than-expected first quarter growth in Gross Domestic Product posted earlier in the day.

"As expected, the near-stagnation in first-quarter GDP growth wasn't enough to prevent the Fed from tapering its asset purchases by an additional $10 billion, to $45 billion per month," said Paul Ashworth, chief U.S. economist, in a client note.

In its policy statement, the FOMC said it believes that "growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions." And, while inflation remains low, "there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions."

The FOMC started withdrawing this stimulus in December, "tapering" the bond purchases from $85 billion a month to the current level of $45 billion. Additional tapering of $10 billion a month was "almost a foregone conclusion," Goldman Sachs (GS) analysts correctly predicted in an analyst note prior to the announcement.

"What matters now is the extent of the Q2 rebound in GDP growth and payrolls," wrote Ian Shepherdson, chief economics at Pantheon Macroeconomics in a note to clients.

Stocks were little changed following the announcement.

The Fed launched the bond purchases in late 2008 during the financial crisis. The policy, known as "quantitative easing," is aimed at boosting growth by keeping longer term interest rates low.

Fed Chair Janet Yellen did not speak after the meeting, as she did following the FOMC's March 18-19 session. Committee members also did not release their individual economic projections.

At the March meeting, Yellen said the economy is improving, but noted that "much remains to be done" to accelerate job growth. She reiterated that point at a speech in New York earlier this month, saying that the labor market remains slack.

The FOMC will get its next snapshot of the job sector on Friday, when the U.S. Labor Department releases its April employment report. After plunging in December and January amid unusually harsh winter weather, payroll gains have picked up in recent months enough to allay concerns that the economy could be headed for another slump.

The federal government on Wednesday reported a plunge in GDP growth for the first three months of the year. Economists had expected frigid weather earlier in the year to lower growth for the quarter to as low as 1 percent, but the number came in even lower at a mere 0.1 percent.

However, economists -- and Fed officials -- aren't too worried. They say that more mild temperatures in recent weeks is supporting a sharp rebound in growth.

  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

Comments

Market Data

Watch CBSN Live

Watch CBS News anytime, anywhere with the new 24/7 digital news network. Stream CBSN live or on demand for FREE on your TV, computer, tablet, or smartphone.

Market News

Stock Watchlist