No tapering yet as Fed commits to more bond purchases

The US Federal Reserve will not yet begin tapering its asset purchases.

Instead it will continue to buy $40 billion (€30.1 billion) of mortgage-back securities and $45 billion of long-term Treasuries a month to support an economic recovery.

The statement from the Federal Open Market Committee placated bond investors, who had anticipated the winding down of the committee’s bond-buying programme. Treasury markets rallied.

However, many analysts still expect the Fed to begin tapering its asset purchases later this year. The Fed gave some support to the view, saying it “sees the downside risks to the outlook for the economy and the labour market as having diminished since the fall”.

Yet the Fed says it will pursue a highly accommodative monetary policy even after it winds down the bond purchases. The committee decided to keep the target range for the federal funds rate at between zero and 0.25% and says this “exceptionally low range” will be appropriate as long as three conditions are met: unemployment stays above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee’s 2% longer-run goal, and longer-term inflation expectations “continue to be well anchored”.

©2013 funds europe

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