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Federal Reserve axes another $10bn from economic stimulus programme Federal Reserve axes another $10bn from economic stimulus programme
(5 months later)
The US Federal Reserve cut another $10bn from its economic stimulus programme on Wednesday even as chairwoman Janet Yellen warned that harsh winter weather had hampered the country’s economic recovery.The US Federal Reserve cut another $10bn from its economic stimulus programme on Wednesday even as chairwoman Janet Yellen warned that harsh winter weather had hampered the country’s economic recovery.
After a two-day meeting, the first to be chaired by Yellen, the central bank insisted that it would continue its efforts to keep interest rates down beyond the point at which it stopped buying government bonds in support of domestic economy.After a two-day meeting, the first to be chaired by Yellen, the central bank insisted that it would continue its efforts to keep interest rates down beyond the point at which it stopped buying government bonds in support of domestic economy.
Yellen also announced that the Fed has decided to alter its guidance on when interest rates would rise. Previously the central bank had indicated that rates could rise when the unemployment rate dipped below 6.5%. The unemployment rate hit 6.7% last month but some sections of US society remain hard hit. Unemployment for black people was 12% last month, for teenagers it was 21.4%. Yellen also announced that the Fed has decided to alter its guidance on when interest rates would rise. Previously the central bank had indicated that rates could rise when the unemployment rate dipped below 6.5%. The unemployment rate hit 6.7% last month but some sections of US society remain hard hit. Unemployment for black people was 12% last month, for teenagers it was 21.4%.
The Fed has now dropped the reference to the 6.5% jobless rate. Instead, the central bank said it would “assess progress … toward its objectives of maximum employment and 2% inflation”. The central bank has kept rates at close to zero for more than five years in an attempt to stimulate the economy in the aftermath of the recession.The Fed has now dropped the reference to the 6.5% jobless rate. Instead, the central bank said it would “assess progress … toward its objectives of maximum employment and 2% inflation”. The central bank has kept rates at close to zero for more than five years in an attempt to stimulate the economy in the aftermath of the recession.
Yellen, an expert on the labour market, has previously noted that the headline rate of unemployment can overstate the job market’s health.Yellen, an expert on the labour market, has previously noted that the headline rate of unemployment can overstate the job market’s health.
She said the job market was still improving and there was still sufficient signs of recovery for the Fed to continue to cut back on its quantitative easing (QE) economic stimulus programme. But she noted that some parts of the US are still suffering the worst winter weather in 30 years. “Unusually harsh weather in January and February has made it especially hard to assess the underlying economy,” said Yellen.She said the job market was still improving and there was still sufficient signs of recovery for the Fed to continue to cut back on its quantitative easing (QE) economic stimulus programme. But she noted that some parts of the US are still suffering the worst winter weather in 30 years. “Unusually harsh weather in January and February has made it especially hard to assess the underlying economy,” said Yellen.
Apart from the disparity among various groups, in recent months the rate has fallen because many people without a job have stopped looking for one and are no longer counted as unemployed. The “participation rate”, which measures the percentage of people in the workforce, is currently at 63%, a low unseen since the 1970s.Apart from the disparity among various groups, in recent months the rate has fallen because many people without a job have stopped looking for one and are no longer counted as unemployed. The “participation rate”, which measures the percentage of people in the workforce, is currently at 63%, a low unseen since the 1970s.
At a press conference Yellen said the labour market was improving but that the rates of long-term unemployment and under-employment were still too high.At a press conference Yellen said the labour market was improving but that the rates of long-term unemployment and under-employment were still too high.
The 6.5% benchmark was set in December 2012 when unemployment stood at 7.8%. “Since then the progress in the labour market has been more rapid than expected while inflation has been lower than expected,” said Yellen. She said that rates were likely to remain close to zero for some “considerable time” after QE comes to an end.The 6.5% benchmark was set in December 2012 when unemployment stood at 7.8%. “Since then the progress in the labour market has been more rapid than expected while inflation has been lower than expected,” said Yellen. She said that rates were likely to remain close to zero for some “considerable time” after QE comes to an end.
“Information received since the Federal Open Market Committee (FOMC) met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions,” the Fed said in a statement.“Information received since the Federal Open Market Committee (FOMC) met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions,” the Fed said in a statement.
“Labour market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow.”“Labour market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow.”
But despite some remaining issues and the winter weather the Fed said the economy was showing “cumulative progress” and cut its quantitative easing (QE) economic stimulus programme by $10bn to $55bn a month. It bought $65bn in March, and $85bn last December.But despite some remaining issues and the winter weather the Fed said the economy was showing “cumulative progress” and cut its quantitative easing (QE) economic stimulus programme by $10bn to $55bn a month. It bought $65bn in March, and $85bn last December.
The Fed’s massive bond-buying programme has been intended to keep long-term borrowing rates low and spur spending. On current trends the programme will end later this year.The Fed’s massive bond-buying programme has been intended to keep long-term borrowing rates low and spur spending. On current trends the programme will end later this year.