Fed cuts bond purchases further, keeps rates unchanged

Policy makers say the economy is gaining strength after a weak start to the year

Policy makers say the economy is gaining strength after a weak start to the year

NEW YORK - Growth is still accelerating in the world’s largest economy after a spell of weakness at the start of the year, the Federal Reserve said Wednesday.

The US central bank left its benchmark lending rate unchanged at 0.0-0.25 percent as expected after a two-day meeting. It also reduced its monthly bond purchases of bond securities by another $10 billion to $45 billion.

At the same time, the Fed repeated that it’s likely to keep the benchmark interest rate near zero for a “considerable time” after bond purchases end.

In its accompanying statement, the Fed reiterated similar points made previously during their meeting in March. The central bank officials noted that the pace of inflation is still running below their target levels of 2 per cent, but the trajectory of price increases has remained stable.

In addition, the economy continued to expand at a moderate pace and labor markets continued to improve gradually, according to the statement. Notably, the central bank said that growth has picked up after a slowdown during the winter months.

“Growth in economic activity has picked up recently, after having slowed sharply,” the Federal Open Market Committee said Wednesday in Washington. “Household spending appears to be rising more quickly.”

The Fed’s announcement came after a government report earlier in the day showed that the US economy slowed more than forecast in the first quarter as a result of extreme weather conditions. The 0.1 percent annual pace of expansion followed a 2.6 percent gain in the fourth quarter.

Still, analysts said that in spite of the lackluster gross domestic product headline figure, recent economic indicators have pointed to an improvement in economic activity, which in turn should support the Fed’s plan to wind down its asset purchases by the end of the year.

Wednesday’s GDP data also showed that consumer spending remained strong at a 3 percent pace and recent indicators on manufacturing, retail sales and job markets have been upbeat.

Analysts at Capital Economics said the rebound in economic indicators late in March “came too late to save first-quarter GDP growth, but we expect to see a strong rebound in second-quarter growth.”

The Fed forecasts the US economy will expand at a 2.9 per cent rate in 2014.

Stocks on Wall Street remained higher after the Fed’s announcement, with investors now focused on another key report – the government’s monthly reading on payrolls due on Friday.

The US economy added 192,000 workers in March, according to the latest Labor Department data.

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