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Fed Surprisingly Left QE Amount Unchanged, No Schedule for Tapering Print E-mail
Special Reports | Written by | Sep 19 13 01:37 GMT

Fed Surprisingly Left QE Amount Unchanged, No Schedule for Tapering

To our and the market majority's surprise, the Fed refrained from tapering QE measures in September. Although the job market has shown signs of improvement, policymakers believed that the outlook has remained uncertain and they were concerned that premature tightening would lead to slowdown of the economic recovery. Kansas City Fed President Esther George dissented in the decision amid concerns that low interest rates would result in financial bubbles. Wall Street rallied with the S&P 500 indices rising to a record high. Gold also jumped to the highest level in a week as the USD slumped.

On the economic developments, policymakers acknowledged economic data released during the intermeeting period showed moderate expansion. Meanwhile, "some indicators of labor market conditions have shown further improvement in recent months, but the unemployment rate remains elevated". At the press conference, Fed chairman Ben Bernanke noted that "conditions in the job market today are still far from what all of us would like to see" and "the committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth".

The new set of economic projections indicated policymakers remained cautious about the economic outlook. For 2013, the range of GDP growth was lower to +1.8% to +2.4% from June's projection of +2.0% to +2.6%. For 2014, GDP growth would reach a range of +2.2% and +3.3%, down from +3.3% and +3.6% in June. The outlook for the job market has improved. The unemployment rate would reach 6.9% to 7.3% this year, compared with June's prediction of 6.9% to 7.5%. For 2016, the Fed is predicting an unemployment rate of 5.2% to 6%. In 2016, the Fed will target a rate closer to 2% although this is not the consensus.

Although Bernanke hinted several months ago about tapering in September, it failed to materialize. Regarding the timing for tapering to really take place, the Chairman stated that "there is no fixed calendar schedule" and "if the data confirm our basic outlook" for economic recovery and the employment market, "then we could begin later this year". He also stressed that the first rate hike might not come until the unemployment rate is "considerably below" 6.5%. the unemployment rate slipped to 7.3% in August.

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