The Federal Reserve continues to see “progress in the labor market,” so it will continue to wind down its economic stimulus program.
After a meeting, the Federal Open Market Committee decided it would now buy $55 billion in bonds per month. That’s a drop of $10 billion a month.
That said, the Chair of the Federal Reserve Janet Yellen said during her first press conference that the U.S. economy still faces some headwinds.
The unemployment rate is still far from where they’d like to see it and inflation is below what the Federal Reserve would like to see.
One big change to note in the FOMC statement released today is that the Fed seems be giving less importance to the jobless rate as a guide for future action. The Wall Street Journal explains:
“In regard to the so-called forward guidance on rates, the Fed has said since late 2012 that it wouldn’t consider raising interest rates from near zero until the jobless rate fell to 6.5%, provided inflation looks likely to remain below 2.5%. In a new policy statement released Wednesday, the Fed dropped the reference to the 6.5% jobless rate, which officials have come to see as too limited an indicator of the labor market’s health.
“Instead, the central bank said it would ‘assess progress…toward its objectives of maximum employment and 2% inflation’ in deciding when to raise rates from near zero, where they’ve been since late 2008. In judging that progress, the Fed will ‘take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments,’ the statement said.”
Update at 3:10 p.m. ET. Fed Policy Not On Pre-Set Course:
Channelling her predecessor, Ben Bernanke, Yellen has resisted questions from reporters who ask for a definite timeline for future Federal Reserve action.
Like Bernanke, she said Fed policy is not on a pre-set course. But if the Fed continues to taper its bond-buying purchases that program should wind down entirely by this fall.
After that point, the Fed will maintain historically low interest rates for a “considerable period.” When pressed what that meant, Yellen said she imagined that would be around six months.
But then she added that it all “depends on what conditions are like.”
If inflation, for example, remains below 2 percent that would argue for keeping interest rates low for a longer period of time.