Members of the Federal Open Market Committee meeting in Washington on Wednesday painted a slightly more positive economic picture since their June gathering but made no change to their $85 billion monthly asset purchase program.
FOMC members also stressed that even when asset purchases slow down, monetary policy will not change. The federal funds rate will stay at zero to 0.25% “for a considerable time after,” according to the statement Wednesday.
“The Fed recognizes that the market expects that they'll begin tapering in September, and they didn't do anything this time to change those expectations,” said Joshua Feinman, New York-based managing director and chief global economist for Deutsche Bank Asset Management in the Americas. The former Fed economist stressed that “tapering does not mean tightening monetary policy. They've been sending that message loud and clear.”
The FOMC's September meeting, which will include economic projections on which next steps will be based, “is really the focal point,” said Mr. Feinman in an interview.
Jeff Rosenberg, chief investment strategist for BlackRock in New York, noted that while earlier readings on second-quarter gross domestic product are stronger than expected, they still show low overall growth. “Such economic performance, even if moving in the right direction, limits the scope for how quickly the Fed can remove its policy accommodations. Rates appear well on their way to higher levels, but the persistent slow pace of economic growth limits how fast those rates can go up,” Mr. Rosenberg said in an e-mailed statement.
“One thing the Fed has tried to make clear is that it's going to respond to the data,” said Karim Basta, director of economic research for III Associates, a $2 billion hedge fund based in Boca Raton, Fla., that specializes in global fixed-income and credit products. “I take my cues in this type of environment more from the data than from the Fed.”
