While most market watchers weren’t really surprised to find out that the Fed pushed through with its taper plan in the latest FOMC statement, there were still a few eyebrow-raising moments that took place. Here are three things I found a little surprising:
1. Unanimous decision to taper $10 billion
The $10 billion monthly reduction in asset purchases has been a majority decision in the past few FOMC announcements, with one or two dissenters from time to time. This time around, ALL Fed policymakers were in agreement that stimulus should be reduced, indicating that the entire committee is optimistic that the U.S. economy can keep improving.
Minneapolis Federal Reserve Bank President Narayana Kocherlakota, the lone dissenter in the previous FOMC decision to taper asset purchases, surprised economic analysts when he refrained from challenging the Fed’s qualitative guidance. He didn’t leave without his share of cautious comments though, as he pointed out that the central bank is still falling short of achieving its inflation and hiring goals.
2. Very upbeat economic assessment
Talk about getting mixed signals! Just when the U.S. economy printed a very meager 0.1% advance GDP reading for the first quarter, the FOMC declares that growth “has picked up recently.” Say what?!
In particular, the Fed statement indicated that housing spending appears to be rising more quickly and that long-term inflation expectations remain stable. Bear in mind though that annualized CPI stood at 0.9% in February, miles away from the Fed’s 2% inflation target.
Meanwhile, the unemployment rate held steady at 6.7% during the same month, allowing the Fed to keep its jobs assessment unchanged. The statement indicated that labor indicators remained mixed but that a few green shoots can be seen. Could this mean that a strong April non-farm payrolls report is in the cards?
3. Asset purchases to end in December?
Should the Fed keep up its upbeat assessment and outlook for the U.S. economy, the central bank could stay on track to end asset purchases in December. It appears that policymakers have moved on from the disappointing economic figures which were mostly a result of extreme weather conditions since Q4 last year.
Of course Fed officials reiterated that they are looking at a wide range of information when it comes to making monetary policy changes, but several analysts believe that tapering is already on auto-pilot. Rate hikes, on the other hand, are a completely different story as there are still plenty of doubts surrounding Yellen’s interest rate forecast.
Do you think the Fed will keep tapering until December? Cast your votes in our poll below or share your thoughts in our comment box!