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Wednesday, October 29, 2014

Fed ends bond buying, exhibits confidence in US recovery

The Federal Reserve today ended its monthly bond purchase program and dropped a characterization of US labor market slack as "significant" in a show of confidence in the economy's prospects.

In a statement after a two-day meeting, the central bank largely dismissed recent financial market volatility, dimming growth in Europe and a weak inflation outlook as unlikely to undercut progress toward its unemployment and inflation goals.

"On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing," the Fed said in an important departure from prior policy statements, which had described the slack as "significant."

US stocks added to earlier losses after the statement was released, while the yield on the benchmark 10-year US Treasury note hit a three-week peak. The dollar rose against the euro as investors pulled forward expectations of an eventual Fed rate hike slightly. Rate futures shifted to show better-than-even odds of a rate increase in September 2015.

"I was pleasantly surprised that they removed the reference to there being significant underutilization of labor resources," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. "I think that is a hat tip to some of the progress being made in the labor market."

The Fed statement retained its guidance on rates, saying they would likely remain near zero for a "considerable time" following the end of the bond purchases this month.

The timing and pace of rate hikes would depend on incoming economic data, the Fed said, new language that apparently earned the support of Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher, who dissented at the previous meeting.
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Tags:  Fed  economy  US  





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