US Federal Reserve cuts growth forecast for 2014

Central bank hints at faster pace of interest rate increases

US Federal Reserve chairwoman Janet Yellen: “Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace.” Photograph: Reuters/Jonathan Ernst

US Federal Reserve chairwoman Janet Yellen: “Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace.” Photograph: Reuters/Jonathan Ernst

Thu, Jun 19, 2014, 01:00

The United States Federal Reserve last night hinted at a slightly faster pace of interest rate increases starting next year, but suggested that benchmark borrowing costs in the long-run would be lower than it indicated previously.

After a two-day policy meeting, the central bank cut its forecast for US economic growth this year to a range of between 2.1 per cent and 2.3 per cent from an earlier projection of about 2.9 per cent.

But its forecasts for 2015 and 2016 were unchanged, and it expressed confidence the recovery was on track.

“Economic activity is rebounding in the current quarter and will continue to expand at a moderate pace,” Fed chairwoman Janet Yellen told a news conference yesterday.

“The economy is continuing to make progress towards our objectives” of full employment and 2 per cent inflation.

As had been widely expected, the central bank pushed ahead with plans to wind down one of its main stimulus programmes, reducing its monthly asset purchases from $45 billion to $35 billion.

However, Ms Yellen said the central bank will continue to hold a large balance sheet “for some time”. Discussions on exiting from record monetary accommodation now under way “are in no way intended to signal any imminent change” in policy, she said.

The Fed provided no further details about its plans to exit other aspects of the extraordinary measures it has taken in response to the crisis.

For now, it said it would continue reinvesting proceeds of its asset holdings as they mature. – (Reuters / Bloomberg)