The Wall Street Journal reports,"the Federal Reserve said Wednesday it would reduce its bond purchases to $45 billion a month and it was starting to see a growth pickup in recent weeks after a harsh winter that hit the U.S. economy".
The Fed is effectively in watch, wait and plan mode. The $10 billion cut in monthly bond purchases, the fourth this year, was widely expected by investors and represents a continuation of the policy strategy laid out in the past few months by Fed ChairwomanJanet Yellen, who took over in February, and former Chairman Ben Bernanke.
The central bank also stuck to its guidance on short-term interest rates, saying they would remain near zero for a "considerable time" after the bond-buying program ends later this year. Many investors don't expect the Fed to start raising interest rates until well into next year.
U.S. stocks rose after the report, with the Dow Jones Industrial Average closing up 0.3% at a record 16580.84. The yield on benchmark 10-year Treasurys fell to 2.647% as the price rose.
The Fed's move came after a government report Wednesday showed the U.S. economy barely grew in the first quarter. The central bank's policy-making committee acknowledged the first-quarter slowdown was worse than expected, saying in a statement that activity "slowed sharply." Previously, the group had just said activity slowed.
Still, officials nodded to signs of economic improvement in March and April, suggesting they aren't too worried about the winter slowdown.
"[G]rowth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," the statement said.
Household spending "appears to be rising more quickly," Fed officials said. Recent reports on retail sales and auto sales have been stronger than expected. But they said business fixed investment had "edged down" and repeated their view from March that the "recovery in the housing sector remained slow."
With reductions in the bond-buying program on course, Fed officials are focusing on longer-run issues. That includes emerging discussions about which short-term interest rates to target once a credit-tightening campaign kicks off.
More broadly, Fed officials need to update their formal exit strategy from easy-money policies. Three years ago, they agreed on a plan to someday sell off the central bank's large portfolio of mortgage-backed securities. Many officials believe this strategy is out of date. For instance, the Fed might choose instead to let the mortgage portfolio wind down gradually without aggressive sales.
