The Federal Reserve announced
Wednesday that it will cut back on the bond buying program by another $10
billion starting in April, but it also announced it is changing its
requirements for raising interest rates.
The economy is still being supported through
near-zero interest rates, which have been in place since 2008. The Fed moved
away from its previous benchmark of 6.5% unemployment for raising interest
rates and instead will take a broader view of the job market into
consideration.
"When the Committee decides to begin to remove
policy accommodation, it will take a balanced approach consistent with its
longer-run goals of maximum employment and inflation of 2 percent," read
the Fed’s statement.
The unemployment rate stood at 6.7% in February. And according to its
latest economic forecasts released Wednesday, the Fed now believes the
unemployment rate could fall as low as 6.1% this year.
The Fed has now decided to take a broad view of the
economy and job market in determining interest rate policy. "This
assessment will take into account a wide range of information, including
measures of labor market conditions, indicators of inflation pressures and
inflation expectations, and readings on financial developments," Fed
officials wrote in the statement.
Speaking to reporters after the meeting, Federal
Reserve Chair Janet Yellen said the job market has improved more than many had
anticipated, though she stressed that it's still weak and offered a list of
various labor market measures that the Fed would be looking at.
Yellen said repeatedly that the change in guidance
does not signal any immediate shift in the Fed's current policy intentions. She
said rates would likely remain low for a "considerable period" after
the Fed's bond-buying program ends.
The Fed has been buying bonds -- mainly long-term
Treasuries and mortgage-backed securities -- since September 2012 in an attempt
to stimulate the economy. The amount of bond purchases has been cut back this
year and will likely continue to taper purchases by $10 billion a month if the
economy continues to show signs of life.
While the job market had been in a rut over the
winter, economists have speculated that the slump was a temporary result of extreme weather, and indicators would
recover in spring.
In its statement, the Fed said economic activity
slowed during the winter months, "in part reflecting adverse weather
conditions."
Yellen said bad weather contributed to a spate of
weak economic data over the first few months of the year. But she said most Fed
officials expect the drag from cold weather will "begin to wash out in
second quarter."
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