Federal Open Market Committee Statement – “Tapering” of Purchase Program Continues

Since December, the Federal Open Market Committee (FOMC), the interest rate-targeting committee of the Federal Reserve, has decreased its bond-buying program from $85 billion in monthly purchases down to $55 billion. Last Wednesday, the FOMC continued the reduction (i.e., “tapering”) of this program by another $10 billion, bringing monthly purchases down to $45 billion. This development was widely anticipated by market participants (Goldman Sachs described it as a “foregone conclusion”) and reflects the FOMC perception that the US economic recovery is on the right track. This contrasts with Wednesday’s unexpectedly low GDP release of 0.1% real quarter-over-quarter growth (annualized). Comparing the previous two FOMC statements, though, it is clear the FOMC took the GDP print into account, as the statement language reflected specific developments released just that morning. We described most of the worrisome events of the first quarter as generally “transitory” in nature, and the FOMC decision to further reduce its asset purchase program somewhat validates this forecast. We tread lightly here, because this only confirms our forecast lines up with what the FOMC is currently projecting. The FOMC may not be correct. Risks to growth remain, but most indicators are pointing in the right direction.