The Federal Reserve is slowing its purchases of bonds by another $10 billion to $25 billion US a month as expected, but gave no hint of when it might feel compelled to alter interest rates.
In a statement following a two-day policy meeting, the Fed said signs the U.S. economy is improving give it more leeway to taper its bond-buying purchase plan. As expected, the Fed decided to keep its benchmark interest rate, right where it is.
The Fed has been buying tens of billions of dollars worth of bonds every month to increase liquidity to the system without having to cut rates from their already low level.
The Fed reiterated its plan to keep short-term rates low "for a considerable time" after its bond purchases end, currently on track for some time in the fall of 2014. Most economists think a rate increase is would come next summer at the earliest.
Improving job market
Central bank statements are renowned for being bogged down in complicated language that often leaves the door open to interpretation. But perhaps the most telling part of the Fed's statement on Wednesday was the removal of a section from previous announcements where it noted the jobless rate was "elevated."
Official data released last month shows the U.S. jobless rate has fallen to a six-year low of 6.1 per cent. Accordingly, the Fed has started to ratchet its fears about joblessness down, saying in Wednesday's statement that "conditions improved" on the jobless front.
That's far from a ringing endorsement, but undeniably a more positive tone. As Scotiabank's economics team said in a research note "The Fed could have turned a bit more upbeat toward labour markets, but did not. It also could have turned a bit more downbeat toward housing, but did not. They have August to mull it over."
It's also worth noting that the Fed decision was not unanimous, with Fed member Charles I. Plosser suggesting the agency's interest rate needs to remain low for "a considerable time after the asset purchase program ends."