U.S. Federal Reserve cuts growth forecast for 2014

U.S. Federal Reserve cuts growth forecast for 2014

PanARMENIAN.Net - The U.S. Federal Reserve has cut its growth forecast for 2014 because of the harsh winter weather, according to BBC News.

The central bank is now predicting growth of between 2.1% and 2.3% for this year, down from its March forecast of 2.8% to 3%. However in its accompanying statement, the bank said that economic activity had "rebounded in recent months".

As expected, it has also trimmed back its stimulus program by $10bn a month to $35bn.

The central bank has been buying bonds to keep long-term interest rates low and encourage banks to lend.

This is the fifth cut in purchases since December and it is expected to stop buying bonds altogether by the autumn.

However the chair of the bank, Janet Yellen, stressed that this was not a pre-set program and if necessary it would change course.

As far as interest rates go, the bank said they would remain near zero "for a considerable time" after the bond buying ends.

Questioned as to how long that might be, Yellen said there was "no mechanical formula" and that it "depends on how the economy progresses".

Ward McCarthy, chief financial economist at Jeffries and Fed watcher for 30 years, said “it's clear they do not have a specific time frame for rate rises. But there also seems to be a wide range of opinions internally as to how quickly they should normalize rates [once they start rising].” Ward thinks interest rates will rise in the second half of 2015. "Janet Yellen has made clear the condition of the labor market is the top priority and she's still very dissatisfied with it. She wants to buy as much time as possible for people on the fringes of the labor market to get back in."

On inflation, Yellen said she expected it to remain at or below the target of 2% until the end of 2016. Low inflation would enable the bank to keep interest rates low.

The Federal Reserve expects growth to pick up again in 2015, sticking to its prediction of 3% to 3.2% expansion.

"Economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually," the central bank said. "Household spending appears to be rising moderately and business fixed investment resumed its advance."

Kim Rupert from Action Economics in San Francisco commented: "Steady as she goes, with respect to policy. [They] want to make sure the recovery is for real and is in place and are still maintaining a very accommodative posture."

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