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Fed cuts US growth forecast, but will also further trim stimulus program

Thursday, June 19th 2014 - 06:09 UTC
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As far as interest rates go, Ms Yellen said they would remain near zero “for a considerable time” after the bond buying ends. As far as interest rates go, Ms Yellen said they would remain near zero “for a considerable time” after the bond buying ends.

The US Federal Reserve has cut its growth forecast for 2014 because of the harsh winter weather. The central bank is now predicting growth of between 2.1% and 2.3% for this year, down from its March forecast of 2.8% to 3%.

 However in an accompanying statement on Wednesday, the bank said that economic activity had “rebounded in recent months”. And as expected, it has also trimmed back its stimulus program by 10bn a month to 35bn beginning July.

The Federal Reserve has been buying bonds to keep long-term interest rates low and encourage banks to lend. This is the fifth cut in purchases since December and it is expected to stop buying bonds altogether by the autumn.

However the chair of the bank, Janet Yellen, stressed that this was not a pre-set program and if necessary it would change course. As far as interest rates go, the bank said they would remain near zero “for a considerable time” after the bond buying ends.

Questioned as to how long that might be, Ms Yellen said there was “no mechanical formula” and that it “depends on how the economy progresses”.

On inflation, Ms Yellen said she expected it to remain at or below the target of 2% until the end of 2016. Low inflation would enable the bank to keep interest rates low.

The Federal Reserve expects growth to pick up again in 2015, sticking to its prediction of 3% to 3.2% expansion.

“Economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually,” the central bank said. “Household spending appears to be rising moderately and business fixed investment resumed its advance.”

However Ms Yellen said she was particularly concerned that some people who had been unable to find work would be permanently excluded from the job market.

“It is conceivable that there is some permanent damage to them, to their own well-being, to their families’ well-being and to the economy’s potential,” Ms. Yellen said, echoing a concern increasingly prevalent among economic policy makers.

At the same time, Ms. Yellen sought to emphasize that the Fed regarded its forecasts as uncertain and its plans as malleable. Officials are concerned investors have grown too complacent about the trajectory of monetary policy and the economy.

The Fed offered little information about the question most on the minds of investors: What comes next, after the central bank ends its bond-buying campaign later this year?

Categories: Economy, Politics, United States.

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  • Briton

    They will come back..

    Jun 19th, 2014 - 12:30 pm 0
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