During the final day of a two day Fed meeting in Washington D.C. the Federal Reserve reported that they are not ready to begin tapering their $85 billion bond buying program until there is more improvement in the labor market and inflation remains steady.
Investors have been watching closely day by day for any signs about the intentions of the Federal Reserve’s $ 85 billion quantitative easing program that consists of the Fed buying monthly purchases of $45 billion in treasuries and $40 billion in mortgage backed securities aimed at lowering interest rates and stimulating spending in the U.S. economy.
“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month” according to the Fed press release statement.
The Fed said that they will maintain their quantitative easing program until the labor outlook shows substantial improvement.
“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.”
The Fed expects the unemployment rate in 2013 to hover between 7.2 – 7.3 percent unemployment level versus their earlier March’s forecast of 7.3- 7.5 percent.
The Fed expects 2013 GDP growth between 2.3 – 2.6 percent and 3.0- 3.5 percent in 2014.
Federal Funds Rate
The federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve and is determined by Fed members during Fed meetings held throughout the year.
The Fed made it clear that the federal funds rate will remain steady until the unemployment level lowers to 6.5 percent and inflation remains close to its 2 percent goal while long term inflation remains “well anchored.”
“In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored,” according to the Fed press release statement.
Fifteen of nineteen Fed members expect no rate increase before 2015 while thirteen of nineteen see rates at 1 percent or higher in 2015.