the U.S. central bank trimmed the size of its bond-buying strategy by $10 billion to $45 billion. This is the fourth straight meeting with an identical, gradual, reduction.
The decision was announced hours after a report showed the economy barely grew in the first three months of the year. The Commerce Department said the economy expanded at a 0.1% rate in January, February and March, an abrupt deceleration from 2.6% growth in the last quarter of 2013.
In a statement, the Fed said data shows “that growth in economic activity has picked up recently.”
The central bank also said the labor market “showed further improvement” and consumer spending “appears to be rising more quickly.”
At its meeting, the Fed decided once again to hold its benchmark federal funds rate at zero, where it has been since December 2008.
Markets seem to be taking the tapering of bond purchases in stride. Traders are focused on the timing of a rate hike, even though the Fed and the market expects this “liftoff” will not happen until the middle of next year at the earliest.
The Fed also kept is forward guidance unchanged, saying that it will be appropriate to keep rates at zero “for a considerable time” after the bond buying program ends. At its current pace, the Fed could decide to end asset purchases in either October or December. The Fed has said bond-buying is not on a pre-set course, but economists think it would take a major shift in the outlook to alter the steady $10 billion-per-meeting reduction.
The Fed decided in March to give the market less information about what will trigger the first rate hike. The central bank said it will look at a wide range of information. This is less clear than a previous pledge not to hike rates while the unemployment rate remained over 6.5%.
But the central bank felt compelled to change this guidance as the jobless rate has steadily declined over the past 2 years. It stood at 6.7% in March.
Fed officials also repeated that even after the first rate hike conditions may keep short term interest rates below normal in the longer run.
Economists and the Fed expect the economy to rebound in the second quarter and for growth to strengthen further to a 3% rate going forward.But some economists note that the stronger growth has been forecast many times since the financial crisis without materializing.
The weak GDP report rules out accelerating the pace of tapering.The vote by Fed officials was unanimous.