Shrugging off dismal economic growth numbers for the first quarter of 2014, the Federal Reserve said Wednesday it would taper back its controversial monthly bond-buying program by another $10 billion in May amid an improving outlook.
The cutbacks in bond purchases bring the monthly amount down to $45 billion a month, well below the pace of $85 billion a month last year. Absent a severe slowdown, the Fed may be done with this stimulus measure by December.
The policymaking Federal Open Market Committee ended its two-day meeting with a statement that said “growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.”
That was a reference to the Commerce Department’s report earlier Wednesday on gross domestic product, the broadest measure of goods and services in the U.S. economy. It showed a faint annual growth rate of 0.1 percent for the first three months of 2014.
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Oddly, the news in the Fed statement was that it was without surprise.
“Not one surprise of note,” said the headline of an investment note penned by Steven Ricchiuto, chief economist of Mizuho Securities in New York. “The makers of policy continued their tapering but left the tone and substance of the statement basically unchanged.”
Added Neil Dutta, head of U.S. economics for Renaissance Macro Research in New York, “This was about as boring as it gets for a (Federal Open Market Committee ) decision. The (Fed) committee acknowledged the obvious: economic growth picked up after a brutal winter.”
After a solid 2.6 percent growth rate for the final three months of last year, mainstream economic forecasters had expected lackluster growth in the range of 1 percent to 1.5 percent. Instead, government data showed the economy barely registered a pulse rate for the first quarter of 2014.
“Labor market indicators were mixed but on balance showed further improvement,” the Fed said, though it added that unemployment remains elevated. “Household spending appears to be rising more quickly. Business fixed investment edged down, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing.”
Fed Chairwoman Janet Yellen and her colleagues saw enough improvement, however, to continue the gradual withdrawal of stimulus they’ve been giving the economy and stock market since 2013 by way of the unusual purchases of government and mortgage bonds.
Economists, too, shrugged off weak first-quarter numbers.
“The economy hit an air pocket at the start of the year. Bad weather, the expiration of the unemployment insurance program and less inventory accumulation all temporarily weighed on growth,” Mark Zandi, chief economist for forecaster Moody’s Analytics, told McClatchy. “The economy should bounce back strongly in the current quarter.”
The White House blamed tough weather gripping much of the nation in January and February for Wednesday’s flat GDP number.
“Consumer spending on food services and accommodations fell for the first time in four years, one of several components that was likely affected by unusually severe winter weather,” Jason Furman, head of the Council of Economic Advisers, said in a statement. “Exports and inventory investment, two particularly volatile components of GDP, also subtracted from growth.”
Republicans pounced on the weak GDP report.
“This report is more than a low number; it is a reflection of the real economic despair that persists in the sixth year of the Obama presidency,” said Brendan Buck, spokesman for House Speaker John Boehner, R-Ohio.
The unusually harsh winter kept some consumers at home, goods sitting at docks or in loading terminals and encouraged businesses to scale back their replenishment of inventories. It’s why some economists expect a second-quarter rebound and a revision to the first-quarter number.
“To be fair, I would not be surprised if this figure is revised upward somewhat when the March data comes into clearer focus, which had already indicated a rebound from weather-related softness in the prior two months,” wrote Chad Moutray, chief economist for the National Association of Manufacturers, in his blog Shopfloor.org.
Trade has been an economic highlight in recent years, but exports tumbled by 7.6 percent during the first three months of 2014. That’s one of the biggest drops since the end of the recession in the spring of 2009 and is due to weather and slowing economic activity in Europe and Asia.
“The big decline in equipment investment and exports were especially disappointing. Both have to pick up significantly if the economy is going to grow 3 percent this year as widely anticipated,” warned Zandi.
The Labor Department issues its monthly jobs report on Friday. A private-sector gauge of hiring released on Wednesday _ the ADP National Employment Report _ showed that employers added 220,000 payroll jobs in April.