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 Recent information "indicates that growth in economic activity has
picked up ... after having slowed sharply during the winter in part
because of adverse weather conditions," the central bank said in a
statement after a two-day meeting.
"Household spending appears to be rising more quickly," it added,
although it said business investment "edged down."
The Fed said it would reduce its monthly bond purchases to $45
billion from $55 billion, a widely expected decision that keeps it
on track to end the program as soon as October. The decision was
unanimous.
Just hours before the statement was released, the government
reported that the economy grew at only a 0.1 percent annual rate in
the first quarter, but the Fed pinned its hopes on other recent data
that has suggested activity is bouncing back.
Indeed, its statement was more upbeat than the one it issued after
its last policy meeting on March 19. At that time, it noted that
activity had slowed, although it said harsh winter weather was at
play.
"What the Fed is saying is ignore this first quarter number, it's
not reflective of the underlying strength in the economy," said Phil
Orlando, chief equity market strategist at Federated Investors in
New York.
Stocks closed up modestly, while prices for U.S. government debt
rose after the Fed's announcement. The dollar, which had dropped on
the disappointing news on first quarter growth, held steady against
the euro and the yen.
STEADY AS SHE GOES
The Fed has now reduced its monthly bond purchases by a cumulative
$40 billion in four steady steps.
The gradual tapering seeks to close an era in which the central
bank's balance sheet quadrupled to more than $4.2 trillion through
three separate purchase programs launched to battle the financial
crisis and the recession and slow growth that followed.
The projected end of the program sets the stage for a series of
policy decisions expected next year on when and how to reduce the
balance sheet to more usual levels, and, most notably, when to move
the target interest rate above the near zero level maintained since
late 2008.
The Fed disclosed that its board of governors met on Tuesday to
discuss "medium-term monetary policy issues," the type of session
that in the past has preceded important policy changes.
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But Janet Yellen's second meeting as Fed chair offered no specific
new guidance on rates or other core questions the Fed must answer in
coming months. The Fed's policy panel said in its statement that it
will keep the overnight target rate between 0 and 0.25 percent "for
a considerable time" after the bond buying ends — the same
formulation it used after its March meeting.
Indeed, outside of its discussion on the economy, the Fed's
statement was little changed from last month.
Going forward, the bond purchases will be split between $25 billion
of Treasuries and $20 billion of mortgage-backed securities, a cut
of $5 billion a month to each.
Analysts expected little out of this session as the Fed enters what
may prove a sort of holding pattern as it closes out the bond
purchases and debates when an initial interest rate increase may be
warranted. Investors currently expect the first rate rise around the
middle of next year.
With little sign of inflation and unemployment at a still-elevated
6.7 percent, Yellen has said there is plenty of "slack" in the
economy. In its statement, the Fed noted that unemployment "remains
elevated" and that continued improvement required "appropriate
policy accommodation" in the form of continued low borrowing rates.
While the GDP report did not throw the Fed off course, it could
influence the discussion going forward. The 0.1 percent annual
growth rate was far below expectations.
"This certainly is going to give Janet Yellen's camp a lot more
ammunition to remain on the more neutral to dovish side," Richard
Cochinos, a currency strategist at Citi in New York, said ahead of
the Fed's decision.
It will also focus attention on the next round of data on jobs and
inflation as signs of whether what the Fed analyzed as a winter lull
was in fact nothing more than that.
(Reporting by Howard Schneider and Michael Flaherty;
additional
reporting by Herb Lash in New York; editing by Paul Simao and Tim
Ahmann)
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