Thursday, June 19, 2014 6:26 am
WASHINGTON- The Federal Reserve slashed its 2014 growth forecast for the US economy Wednesday to 2.1-2.3 percent after a deeper-than-expected contraction in the first quarter of the year.
But the Federal Open Markets Committee left its forecast for interest rates largely intact, predicting as earlier that an initial increase of the benchmark federal funds rate from the current zero level would take place only next year, and the rate would not rise rapidly after that.
The FOMC, as expected, decided to ratchet down its bond-buying stimulus program by another $10 billion, taking it to $35 billion a month from $85 billion in December.
The central bank policymakers said economic growth “has rebounded in recent months” from the first-quarter contraction.
Household spending and business investment are both rising, they said in their policy statement.
But they also said that unemployment, even with the rate now at 6.3 percent, “remains elevated”, and that the recovery of the housing sector is slow.
In March the Fed forecast gross domestic product growth at 2.8-3.0 percent, before the depth of the winter setback, partially due to extremely harsh weather across much of the country, was known.
But central bank officials stuck to their prediction for GDP growth of 3.0-3.2 percent in 2015, with inflation holding at around 2.0 percent.
They also see the unemployment rate, a key indicator for monetary policy, falling from the current 6.3 percent to 6.0-6.1 percent by year-end, and 5.4-5.7 percent in 2015, both slightly lower than previously forecast.
There was a very slight upward change to the FOMC’s much-watched “dot chart” plotting out where participants in the monetary policy meeting see interest rates going for the next three years.
On average they see the fed funds rate hitting 1.125 percent by the end of 2015, compared with the previous forecast of 2.0 percent, and 2.125 percent at the end of 2016.
But they pared back slightly their forecast for further increases after that.
US stocks, which were trading slightly lower ahead of the FOMC announcement, pushed higher after it. The S&P 500 was up 0.3 percent at 1948.32. The dollar meanwhile was little changed from earlier losses, trading at $1.3570 per one euro.