US Fed expected to cut bond-buying by further $10 billion

The Federal Reserve is expected to cut its bond-buying program by a further $10 billion today, confident that the US economy will pull away from its sharp winter slowdown.

Janet Yellen’s second policy-setting session as Fed chair should confirm the US central bank’s plan to wind down its purchases of Treasuries and mortgage-backed securities by year-end, a sign of its confidence the economy is gaining traction.

That decision is unlikely to be shaken by new data showing the economy grew at a disappointing 0.1 per cent annual rate at the start of the year. The Fed has already said it anticipated a poor first-quarter result because of a harsh winter in many parts of the United States.

The reduction likely to be announced at the end of the Fed’s two-day meeting would bring the total monthly purchases down to $45 billion, split between $25 billion of Treasuries and $20 billion of mortgage-backed securities.

Analysts expect little more out of the session as the Fed enters what may be a sort of holding pattern as it transitions from an era of crisis response to one of more normal monetary policy.

The meeting "will probably be a quiet one," with the reduction in purchases "a foregone conclusion," and no fresh economic forecasts from the members of the Fed's policy-making committee, said Goldman Sachs senior economist Kris Dawsey. A statement outlining the policy decision and the Fed's view of the economy will be issued later.

Little or no change is expected in the Fed’s guidance on its key overnight interest rate, which it has kept near zero since the depths of the financial crisis in December 2008. The Fed changed its guidance in March when it dropped language that said the target rate would not be increased until the unemployment rate fell to at least 6.5 per cent.

Unemployment has been steadily approaching that threshold, and now stands at 6.7 per cent. But with little sign of inflation, Yellen has said she feels there is still ample “slack” in the economy and a need to keep rates low to continue to support economic growth.