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September 19, 2017

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Fed cuts stimulus, provides no clear hint on first rate increase

WASHINGTON--The Federal Reserve is further slowing the pace of its bond purchases because it thinks an improving U.S. economy needs less help. But it's offering no clearer hint of when it will start raising its benchmark short-term interest rate.

The Fed on Wednesday reiterated its plan to keep short-term rates low "for a considerable time" after its bond purchases end. Most economists think a rate increase is about a year away despite a strengthening economy. The government estimated Wednesday that the economy grew at a fast 4 percent annual rate last quarter.

In a statement after a two-day policy meeting, the Fed revised the wording of its previous statement to acknowledge that while the unemployment rate has fallen steadily, the job market remains subpar in other ways. The Fed didn't specify what it meant. But Chair Janet Yellen expressed concern to Congress this month about stagnant wage growth, a high number of part-time workers who can't find full-time jobs and the proportion of the unemployed who have been out of work for more than six months.

The Fed also tweaked its statement to say inflation had risen closer to its 2 percent target. The statement said concerns that inflation would persistently run below the Fed's 2 percent target had "diminished somewhat." But it expressed no concerns about the slight acceleration in prices.

The Fed announced, as expected, that it's paring its monthly purchases by another US$10 billion to US$25 billion. The bond purchases have been intended to keep long-term borrowing rates low and are set to end in October.

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