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PR Newswire
01-08-2013, 07:37 AM
BY:VICTORIA MCGRANE AND JON HILSENRATH From: Dow Jones August 01, 2013 8:27AM
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FEDERAL Reserve officials kept the central bank's $US85 billion-per-month bond-buying program in place and pointed to modest growth, higher mortgage rates and low inflation as factors it is watching closely.
The Fed said that the economy has expanded "at a modest pace," during the first half of the year and also noted that mortgage rates "have risen somewhat."
The description of growth as modest appears to be a slight downgrade from the "moderate" growth Fed officials had been seeing in the economy. It is the first time in at least three years that the Fed has used the term "modest" to describe the economy in its formal policy statement. The Fed's comment about higher mortgage rates is also a new expression of concern in the statement.
Earlier Wednesday, the Commerce Department released new numbers showing the economy expanded at a rate of 1.7 per cent in the second quarter, beating expectations but still exhibiting lacklustre growth overall. The government also revised down its estimate of first-quarter growth to 1.1 per cent. Economists surveyed by Dow Jones Newswires had forecast GDP growth of 0.9 per cent for the second quarter.
RECOMMENDED COVERAGE
Wall Street sign
Fed gives Wall St a rocky ride
The overall performance showed that the US economy had struggled to gain momentum amid slow growth abroad, domestic political uncertainty, higher taxes and sweeping federal budget cuts. Still, some data suggested that the economy may perk up a little in coming months, supported by a resurgent housing market, renewed business spending and the diminishing effects of government tax and spending policies.
In its latest statement, the Fed placed new emphasis on inflation. "The Committee recognises that inflation persistently below its 2 per cent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term."
Inflation has been running near 1 per cent in recent months. The Fed kept its inflation and unemployment thresholds in place.
Fed officials also voted to keep short-term interest rates pinned near zero.
The markets took off on a wild ride in early May in reaction to Fed officials started trying to explain its expectations for the end of the bond-buying program. Volatility intensified after Fed Chairman Ben Bernanke set out a tentative timeline for the Fed to pull back the program during a June 19 press conference. Mr Bernanke said that if the economy continues to improve as the Fed expects, the central bank could make the first reduction in its bond purchases later this year and, possibly, conclude the program by mid-2014.
Jarred by the market's sharp reaction, Fed officials spent subsequent weeks trying to calm jittery markets and challenge perceptions that talk of scaling back the bond program meant the Fed was looking to raise short-term interest rates sooner than expected. Rates have been pinned near zero since late 2008.
The campaign appeared to work. Stock prices, which initially fell in response to news on the bond-buying front, have reached new highs. Interest rates moderated, but remain notably elevated from where they were in early May. Mr Bernanke has called the financial tightening "unwelcome" and expressed concern higher interest rates could be a drag on the recovery, though he said it was too soon to tell if any damage had occurred.
Eleven out of 12 Fed officials concurred with the policy statement. St. Louis Fed president James Bullard, who dissented at the last meeting, voted for the statement.
Kansas City Fed President Esther George dissented because she was concerned that the "continued high level of monetary accommodation increased the risks of future economic and financial imbalances" and could push long-term inflation expectations higher, according to the statement. Ms George has dissented now at all of the Fed's policy meetings this year.
The US dollar fell against major currencies after the Fed’s statement.
"The dollar selling was a knee-jerk reaction from some people in the market who were hopeful that we would have a signal for tapering to begin in September," said Michael Woolfolk, currency strategist at Bank of New York Mellon.
The US dollar eased to Y97.88 compared with Y98.05 late Tuesday. The euro soared to a six-week high, ending the New York session at $1.3303 versus $1.3262 late Tuesday. The Australian dollar fell below $0.90 to its lowest level since August 2010, trading more recently at $0.8981 from $0.9064.
Gold futures swung between $US1305.30 and $US1323.20 an ounce in electronic after-market trade as investors sifted through the FOMC statement. Gold floor trading had ended for the day at 1.30pm EDT, about half an hour before the Fed released its statement.
The most actively traded contract, for December delivery, settled down $US11.80, or 0.9 per cent, at $1313.00 a troy ounce on the Comex division of the New York Mercantile Exchange.
Gold prices have tumbled 22 per cent so far this year amid anticipation that the Fed would roll back the stimulus measure. Some investors worry that bond yields will rise in response, leaving little reason to hold a zero-yielding asset like gold.
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FEDERAL Reserve officials kept the central bank's $US85 billion-per-month bond-buying program in place and pointed to modest growth, higher mortgage rates and low inflation as factors it is watching closely.
The Fed said that the economy has expanded "at a modest pace," during the first half of the year and also noted that mortgage rates "have risen somewhat."
The description of growth as modest appears to be a slight downgrade from the "moderate" growth Fed officials had been seeing in the economy. It is the first time in at least three years that the Fed has used the term "modest" to describe the economy in its formal policy statement. The Fed's comment about higher mortgage rates is also a new expression of concern in the statement.
Earlier Wednesday, the Commerce Department released new numbers showing the economy expanded at a rate of 1.7 per cent in the second quarter, beating expectations but still exhibiting lacklustre growth overall. The government also revised down its estimate of first-quarter growth to 1.1 per cent. Economists surveyed by Dow Jones Newswires had forecast GDP growth of 0.9 per cent for the second quarter.
RECOMMENDED COVERAGE
Wall Street sign
Fed gives Wall St a rocky ride
The overall performance showed that the US economy had struggled to gain momentum amid slow growth abroad, domestic political uncertainty, higher taxes and sweeping federal budget cuts. Still, some data suggested that the economy may perk up a little in coming months, supported by a resurgent housing market, renewed business spending and the diminishing effects of government tax and spending policies.
In its latest statement, the Fed placed new emphasis on inflation. "The Committee recognises that inflation persistently below its 2 per cent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term."
Inflation has been running near 1 per cent in recent months. The Fed kept its inflation and unemployment thresholds in place.
Fed officials also voted to keep short-term interest rates pinned near zero.
The markets took off on a wild ride in early May in reaction to Fed officials started trying to explain its expectations for the end of the bond-buying program. Volatility intensified after Fed Chairman Ben Bernanke set out a tentative timeline for the Fed to pull back the program during a June 19 press conference. Mr Bernanke said that if the economy continues to improve as the Fed expects, the central bank could make the first reduction in its bond purchases later this year and, possibly, conclude the program by mid-2014.
Jarred by the market's sharp reaction, Fed officials spent subsequent weeks trying to calm jittery markets and challenge perceptions that talk of scaling back the bond program meant the Fed was looking to raise short-term interest rates sooner than expected. Rates have been pinned near zero since late 2008.
The campaign appeared to work. Stock prices, which initially fell in response to news on the bond-buying front, have reached new highs. Interest rates moderated, but remain notably elevated from where they were in early May. Mr Bernanke has called the financial tightening "unwelcome" and expressed concern higher interest rates could be a drag on the recovery, though he said it was too soon to tell if any damage had occurred.
Eleven out of 12 Fed officials concurred with the policy statement. St. Louis Fed president James Bullard, who dissented at the last meeting, voted for the statement.
Kansas City Fed President Esther George dissented because she was concerned that the "continued high level of monetary accommodation increased the risks of future economic and financial imbalances" and could push long-term inflation expectations higher, according to the statement. Ms George has dissented now at all of the Fed's policy meetings this year.
The US dollar fell against major currencies after the Fed’s statement.
"The dollar selling was a knee-jerk reaction from some people in the market who were hopeful that we would have a signal for tapering to begin in September," said Michael Woolfolk, currency strategist at Bank of New York Mellon.
The US dollar eased to Y97.88 compared with Y98.05 late Tuesday. The euro soared to a six-week high, ending the New York session at $1.3303 versus $1.3262 late Tuesday. The Australian dollar fell below $0.90 to its lowest level since August 2010, trading more recently at $0.8981 from $0.9064.
Gold futures swung between $US1305.30 and $US1323.20 an ounce in electronic after-market trade as investors sifted through the FOMC statement. Gold floor trading had ended for the day at 1.30pm EDT, about half an hour before the Fed released its statement.
The most actively traded contract, for December delivery, settled down $US11.80, or 0.9 per cent, at $1313.00 a troy ounce on the Comex division of the New York Mercantile Exchange.
Gold prices have tumbled 22 per cent so far this year amid anticipation that the Fed would roll back the stimulus measure. Some investors worry that bond yields will rise in response, leaving little reason to hold a zero-yielding asset like gold.
