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Fed Cuts Stimulus by Another $10 Billion as Yellen Outlines Stimulus Exit Strategy

H.S. Borji
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Fed Cuts Stimulus by Another $10 Billion as Yellen Outlines Stimulus Exit Strategy

The Federal Reserve announced today it plans to taper asset purchases 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 April the Fed will ease $55 billion per into the financial markets. The Fed will add to its holdings of mortgage-backed securities at a pace of $25 billion per month rather than $30 billion, and will add to its holdings of Treasury securities by $30 billion per month rather than $35 billion.

Federal Reserve Chair Janet Yellen said the central bank’s record stimulus program could end this fall, which would pave the way for a rate hike six months later. Fed policymakers reiterated their view that interest rates would remain at record lows for the rest of the year, according to revised forecasts published today. The Fed’s statement said policymakers forecast the interest rate to be 1 percent at the end of 2015 and 2.25 percent a year later.

The Federal Open Market Committee acknowledged the broad slowdown in economic activity this winter, but noted cumulative progress toward maximum employment was being made. The slowdown was partly attributed to inclement weather, a sentiment shared by most economists.

Below is an excerpt from the official FOMC press release.

“… growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions, Labor 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… Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.”

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