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Fed cuts stimulus by another $10 billion, says economy is improving

H.S. Borji
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Fed cuts stimulus by another $10 billion, says economy is improving

The Federal Reserve announced today it plans to trim bond purchasing by another $10 billion, as the central bank continues to roll back record stimulus in measured steps leading to its full elimination this fall.

Beginning in May the Fed will ease $45 billion each month into the financial markets. The Fed will add to its holdings of mortgage-backed securities at a pace of $20 billion per month rather than $25 billion, and will add to its holdings of Treasury securities by $25 billion per month rather than $30 billion.

The benchmark lending rate was left at 0.25 percent.

“The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions,” read the Federal Reserve’s official press release. “In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases.”

While not unexpected, today’s stimulus cut comes amid signs the US economy hit a rough patch this winter, which could impact the nation’s outlook for the balance of the year. US gross domestic product expanded only 0.1 percent in the first quarter, a sign the economy was suffering from more than just bad weather.

Inclement weather is believed to have trimmed 1.4 percentage points from first quarter GDP growth.

On balance, however, the economy is rebounding, as evidenced by a spate of recent data pointing to increased consumer spending and better labour market conditions. Today’s GDP report, while disappointing, showed real personal consumption expenditures remained strong in the first quarter, increasing at a rate of 3 percent.

A separate report courtesy of the ADP Institute showed private payroll employment increased by 220,000 in April, following a revised gain of 209,000 the prior month, the fastest pace since November 2013.

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