Wednesday, March 20, 2013

Federal Reserve keeps QE, economy grows moderately

   The U.S. Federal Reserve maintained its target for the benchmark federal funds rate and its monthly purchases of $85 billion of housing-related debt and Treasury bonds, saying the economy was returning to moderate growth, and while the labor market has improved, the unemployment rate remains elevated.
    Repeating previous statements, the Federal Reserve said it it expects that its "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."
    This means that the federal funds rate will be kept at the current level of 0-0.25 percent for a least as long as the unemployment rate remains above 6.5 percent and inflation is projected at a maximum 2.5 percent between one and two years ahead, the Federal Reserve's policy committee, the Federal Open Market Committee (FOMC) said in a statement.
    The U.S. headline consumer price inflation rate rose to 2.0 percent in February from 1.6 percent in January while the unemployment rate fell to 7.7 percent from January's 7.9 percent.
    The FOMC's latest forecast calls for the jobless rate to decline faster than forecast in December but  first hit the target of 6.5 percent in 2015 when the rate is forecast at 6.0-6.5 percent.

    The Federal Reserve said household spending and business fixed investment had advanced, and the housing sector had strengthened further since its last meeting but fiscal policy had become somewhat more restrictive.
    U.S. fourth quarter Gross Domestic Product was revised upwards to growth of 0.1 percent from the third quarter from an initial estimate of a 0.1 percent shrinkage. The annual growth rate in the fourth quarter was 1.6 percent, down from the third quarter's 2.6 percent.
    In its latest economic forecast, the FOMC trimmed its 2013 GDP forecast to 2.3-2.8 percent, from a previous forecast of 2.3-3.0 percent, and the 2014 forecast to 2.9-3.4 percent from 3.0-3.5 percent.
     In 2015, GDP is forecast to grow 2.9-3.7 percent compared with December's forecast of 3.0-3.7 percent.
    The U.S. unemployment rate is forecast to ease to 7.3-7.5 percent this year and then decline to 6.7-7.0 percent in 2014. The inflation rate, as measured by personal consumption expenditures, is forecast to remain below the Federal Reserve's 2.0 percent target this year, then hit 1.5-2.0 percent in 2014 and 1.7-2.0 percent in 2015.


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