Shrugging off dismal growth numbers for the first quarter of 2014, the Federal Reserve said Wednesday that it will taper its monthly bond-buying program by another $10 billion in May amid an improving outlook.
The cutbacks bring the monthly amount down to $45 billion, 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 Wednesday on gross domestic product, the broadest measure of the U.S. economy. It showed a faint annual growth rate of 0.1 percent for the first three months of 2014.
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.”
Economist Neil Dutta of Renaissance Macro Research added: “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 of 1 to 1.5 percent. Instead, government data showed, the economy barely registered a pulse in the first quarter.
“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 to withdraw the stimulus they’ve been giving the economy and stock market since 2013 by buying government and mortgage bonds.
Economists, too, shrugged off the 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,” said Mark Zandi, chief economist for forecaster Moody’s Analytics. “The economy should bounce back strongly in the current quarter.”
The White House blamed bad weather 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 White House Council of Economic Advisers, said in a statement. “Exports and inventory investment, two particularly volatile components of GDP, also subtracted from growth.”
But 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.