«Reserve» U.S. continues to reduce the size of the bond-buying program

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«Reserve» U.S. continues to reduce the size of the bond-buying program

 

     

Janet Yellen speaks during a news conference in Washington yesterday (AFP)

Date Published: Friday, March 21, 2014

WASHINGTON (Agencies) - The Federal Reserve (central bank) U.S. yesterday continued downsizing program to buy U.S. Treasury bonds.The council said it would cut the size of its purchases of bonds of 65 billion dollars a month to 55 billion dollars.

At the same time, kept the Open Market Committee concerned to determine monetary policy at the Federal Reserve on interest rates at the record low level of 0.25% and at the end of its first meeting under the chairmanship of the new president of the Federal Reserve Janet Yellen.

The Council stated that the application of the decision to reduce bond purchases will begin early April. On the other hand, the council said he would not think an increase in the interest rate before the U.S. unemployment rate to fall to 6.5%. The interest rate in the United States continuously at a record low of 0.25 percent since December 2008.

 

 

The chairwoman of the Council Janet Yellen «There is still a lot of work to be done in terms of jobs and inflation». The Yellin has assumed the presidency of the Council from the first of February. At the same time the council said he would not think an increase in the interest rate before the U.S. unemployment rate to fall to 6.5%. It is noteworthy that the rate of inflation in the United States less than 7% since last December. Has reached 6.7% last month.

 

The council said in a statement that the change orientation Reserve Board «does not indicate any change in the Commission's intentions on monetary policy». He added that the Council will assess the progress for both goals achieved or expected on the maximum employment and inflation target of 2%. And that the evaluation would consider a variety of information, including the labor market indicators and indicators of inflation pressures and expectations and reading financial developments. The council said that the interest rate near zero percent will remain the same for a long time, after the termination of the program of buying U.S. government bonds, especially if the inflation rate remained low.

Interest rates

Janet Yellen, said that the bank may terminate its broad to buy bonds backed by the government later this year, may start to increase interest rates in the first half of 2015.

The monetary policy committee of the Federal Reserve yesterday that the interest rate target may continue «for a long time» after the end of the bond-buying, which lowered since December of 85 billion dollars a month to 55 billion as of April

She explained: «If we continue to reduce the pace of asset purchases calculated steps», the process of buying bonds will expire in the fall of 2014.

On the other hand, Yellen said that the bank is closely watching the crisis in Ukraine. She said relents after a meeting with the Monetary Policy Committee to determine the interest rate the Council of the Federal Reserve: «It is something we are watching closely too .. we discussed in our meeting that links direct business or is subjected to the banking system in the United States because of Ukraine and Russia is not great, and do not see the effects of meaningful now ».

She pointed out that softens the effects that can increase if expanded military confrontation in the Crimea, which can be reflected in the international financial markets. She relents: «Clearly, the existence of geopolitical risk here is important for us to heed her well and put our eyes on them, we do not see the repercussions of the global financial and extensive. But if there is an escalation, it certainly would be originally provided from our side .. but we do not see it now ».

Growth forecasts

The Federal Reserve announced a reduction basket high expectations for economic growth for the years 2014 and 2015, but noted at the same time to improve its forecasts on unemployment. Thus, the gross domestic product will rise by between 2.8% and 3.0% according to the annual pace in the last quarter of 2014, registering a slight decline compared to the 2.8% to 3.2% expected in last December, according to the quarterly expectations of the new Policy Committee cash.

The U.S. central bank appeared more pessimistic for 2015 and confirmed that the improvement in economic activity will go down less than expected. For the next year, the Council predicted growth of 3.0% to 3.2% versus 3.0% to 3.4% had been expected so far.

The U.S. central bank on the other hand to restore optimism in terms of work. For the year 2014, the unemployment rate is expected to range between 6.1% and 6.3% versus 6.3% to 6.6% expected so far, according to a new forecast. In February, the unemployment rate was 6.7% in the United States. For 2015, it is expected the U.S. Federal Reserve strongest improvement with an unemployment rate of between 5.6% and 5.9% to 5.8% to 6.1% had been expected so far.

The unemployment rate is one of the key elements that take into account the Federal Reserve to approve retaining the key interest rate close to zero. And on the inflation component - the other main under consideration by the Federal Reserve, the projections indicate a slight increase in 2014 (from 1.5 to 1.6% versus 1.4% to 1.6 unexpected yet). According to these new projections, the inflation target sought by the Federal Reserve (2% annually) may be achieved in 2015.

Stocks fall

U.S. stocks closed lower yesterday after the first remarks raised the head of the Federal Reserve (the U.S. central bank) Janet Yellen likelihood of an increase in interest rates sooner than expected.

Based on the latest available data, the Dow Jones industrial average ended down 114.02 points, or 0.70% to 16222.17 points. He lost the S & P 500, the broader 11.47 points, or 0.61% to 1860.78%. The Nasdaq Composite Index of technology stocks 25.71 points, or the equivalent of 0.59 percent to 4307.602 points.

European stocks fell in early trading yesterday, led down the stock vulnerable to growth after the Federal Reserve signaled that it may raise interest rates sooner than the market was expecting. The Central American policy based on lower interest rates and bond buying has pushed many investors to turn to buy the stock.

By 0805 GMT the FTSEurofirst 300 index of leading shares of European companies 0.5% to 1298.71 points, after it settled little changed on Wednesday.

The stock sectors that rely on global growth, the most prominent losers yesterday as the benchmark Stoxx Europe 600 for the chemicals sector and the Stoxx Europe 600 stocks Travel and Leisure 0.9% and 0.8%, respectively. In the rest of Europe down FTSE 100 was 0.5% and the CAC 40 index fell 0.8% at the French Open.