Fed pulls back stimulus despite feeble GDP


The Federal Reserve is sticking with its plan to gradually wrap up its economic stimulus despite disappointing economic data that was released on Wednesday.

The Federal Open Market Committee announced the Fed would reduce the amount of bonds it purchases each month by $10 billion, bringing the Fed’s “quantitative easing” to $45 billion per month.


In its policy statement, the Fed said economic growth had “picked up recently,” after a slowdown due to an unseasonably cold winter. Earlier Thursday, the Commerce Department reported the economy grew just 0.1 percent in the first quarter of the year.

Economists had expected growth to come in closer to 1 percent, but it appeared the cold winter months across the country weighed on the housing market, business investment and consumer spending, as Americans shelled out more to cover heating costs.

The Fed’s statement indicates the central bank believes the slowdown was largely due to the winter weather rather than some inherent weakness in the economy. Fed officials noted that household spending appeared to be accelerating, and that economic drag thanks to tight fiscal policy was waning.

Support for reducing the size of the bond purchases was unanimous among the committee members.

The Fed has agreed for four straight months to reduce the size of its monthly bond purchases, and now will buy $25 billion in Treasury bonds and $20 billion in mortgage debt.

As is customary, the Fed said it would be closely monitoring incoming economic data as it seeks to wind down its stimulus.

White House press secretary Jay Carney attributed the substantially slower growth to "historically severe winter weather."

"Outside economists have estimated that between 1 percent and 1.5 percent of GDP can be attributed to that weather ... as a result of what was historically severe weather, one of the coldest winters on record, the greatest number of snowstorms on record," Carney said.

But the White House spokesman argued that consumer spending on healthcare actually helped drive economic growth over that period.

"That is directly related to the increase in people who have insurance because of the Affordable Care Act," Carney said.

--Justin Sink contributed to this report, which was updated at 2:42 p.m.