Fed shrinks stimulus again

The Federal Reserve continued its slow exit from stimulus Wednesday.

The central bank announced it would cut by $10 billion the size of its monthly bond purchases that make up its latest round of quantitative easing, dropping it to $55 billion. In its policy statement, the Fed also abandoned a threshold it had previously set for when the central bank might be ready to raise rates.


Previously, the Fed had said it would not likely raise rates before the unemployment rate fell below 6.5 percent. But with the jobless rate at 6.7 percent and the Fed not ready to hike borrowing costs, that numerical threshold was scrapped.

Instead, the Fed said it would take into account a wide range of economic factors, including the job market, signs of inflation, and any new developments in financial markets.

The Fed statement was released shortly before Federal Reserve Chairwoman Janet Yellen was set to discuss the changes in her first-ever press conference as leader of the central bank.

On the broader economy, the Fed struck a somewhat optimistic tone, saying it expects there is enough underlying strength in the economy to further improve the labor market. The Fed also gave a nod in its statement to winter weather as a temporary factor that slowed economic activity in the first months of the year.

In new economic projections released alongside the statement, Fed officials slightly pared back their expectations for economic growth, but boosted expectations for the labor market.

Now, Fed officials expect the economy to grow between 3 percent and 3.2 percent in 2015, down from a 3 percent-3.4 percent range in December. They expect the jobless rate to fall to between 5.6 percent and 5.9 percent, down further than December's expectation of 5.8 percent-6.1 percent.

The Fed began slowing its stimulus in December, when it announced it would start gradually reducing the size of its monthly bond purchases, always keeping an eye on the economy while doing so. A spate of disappointing economic data to open 2014 was not enough to dissuade the Fed, as it stuck with the shrinkage at its January meeting.

With today’s announcement, the Fed has lowered the size of its purchases by $30 billion, and if the economy continues to steadily improve, and the Fed sticks with its plan, it could stop buying bonds altogether by this fall.