Today's policy statement from the Federal Reserve was about as close to a non-event as possible. The Fed acknowledged that the US economy "has picked up recently" since the first quarter, citing faster growth in consumer spending. However, it also noted a drop in business investment. Other than that, the Fed made no notable changes to its policy statement and there were no dissents.
As expected, the Fed announced it would reduce its monthly purchases of Treasury securities and mortgage-backed securities by another $5 billion each ($10 billion total) to $45 billion starting in May. This follows a tapering of $10 billion announced at each of the three prior meetings in December, January, and March. So the size of the Fed's balance sheet will continue to rise, but slightly more slowly than before.
Our view is that the Fed will continue to taper quantitative easing (QE) and probably finish expanding its balance sheet this fall. It should start raising short-term rates by the second quarter of 2015.
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