In the accompanying statement the Open Market Committee (FOMC) adjudged the downside risks to the economy and the labor market to have diminished since the fall of last year when the asset purchasing program was launched. This suggests increased confidence at the central bank that the economy remains in recovery mode despite the restrictive fiscal policy stance.
The updated macroeconomic projections of the FOMC members underscore this assessment. Although the projection for growth in the course of 2013 was trimmed down slightly, the projection for next year was nudged upwards. The projection for the unemployment rate was also somewhat more favorable, showing a fall to 6.65% in Q4 2014 and 6.0% at the end of 2015. But the majority of participants still put the timing of the first rate hike in 2015.
The updated macroeconomic projections of the FOMC members underscore this assessment. Although the projection for growth in the course of 2013 was trimmed down slightly, the projection for next year was nudged upwards. The projection for the unemployment rate was also somewhat more favorable, showing a fall to 6.65% in Q4 2014 and 6.0% at the end of 2015. But the majority of participants still put the timing of the first rate hike in 2015
Basically, the statements on the asset purchasing program are not really new. They are in line with Bernanke’s statements to Congress on 22 May of this year. To date the FOMC has also indicated that the asset purchasing program will be ended well before the first interest rate hike. To this extent, the slide on the stock markets following the press conference is somewhat baffling.
Bernanke’s pointers to the discussion within the Fed on the shaping of the monetary policy normalization process argue against an aggressive approach by the Fed. Accordingly, in the course of this process the Fed will possibly forgo the sale of mortgage-backed securities from the Fed portfolio.
All in all, we still expect to see a gradual exit from crisis mode. Even with a reining in of asset purchases, US monetary policy would still remain highly accommodative.