FOMC Continues Taper; Rates Unchanged

The Federal Open Market Committee continued to taper its asset purchases, cutting $5 billion off each its agency mortgage-backed securities and longer-term Treasury securities, and held the 0 to 1/4 percent target range for the federal funds rate.

The panel saw a rebound in economic activity in the second quarter, with improved labor markets, despite "significant underutilization of labor resources." Household spending saw moderate growth.

"The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate," the Fed said in a release. "The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat."

Noting sufficient underlying economic strength to support labor growth, the committee will cut to $10 billion a month its purchases of agency mortgage-backed securities, while buying Treasury securities at a pace of $15 billion per month. It will also reinvest "principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction."

The statement also noted, "The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored."

Charles I. Plosser "objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for 'a considerable time after the asset purchase program ends,' because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee's goals."

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