(Reuters) - The Federal Reserve on Wednesday left in place its monthly $85 billion bond-buying stimulus plan, saying economic growth had stalled but indicating the pullback was likely temporary.
Describing the nation's job market as continuing its modest pace of improvement, the Fed repeated a pledge to keep purchasing securities until the outlook for employment improves substantially.
KEY POINTS: * The Fed's bond-buying program is part of the central bank's unprecedented efforts to spark a stronger economic recovery and drive down unemployment. * The Fed has kept overnight interest rates near zero since late 2008 and it has tripled its balance sheet to about $3 trillion through its purchases of securities, which are aimed at pushing longer-term borrowing costs lower. * However, the recovery from the 2007-2009 recession has been stubbornly tepid. * "The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate," the Fed said, in its statement.
DAN VERU, CHIEF INVESTMENT OFFICE, PALISADE CAPITAL MANAGEMENT, FORT LEE, NEW JERSEY:
"The key thing for investors is that liquidity remains in place. The market, after it digests this information, is likely to continue to buy the dips versus sell the rallies.
"We're little changed - there's no change in the policy, a little bouncing around in the equity market. But it wouldn't surprise me if the market were higher by the end of the day because everything is in place for the rally to continue."
MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES AMERICA, NEW YORK:
"The Fed's statement is a little more upbeat than the prior one. They say activity has paused, but they attribute that to transitory factors. They upgraded their assessment of business fixed investment which they say has advanced. Last time they said it slowed. Last time they said they remained concerned the economy would not be strong enough to reduce unemployment. This time they said growth would proceed at a moderate pace and that unemployment would come down gradually. That's a more optimistic perspective. Last time they cited significant downside risk from global financial strains. This time they dropped the word 'significant.' These are subtle signs of their more upbeat view of the economy.
"I look for the Fed to reduce the size of their purchases in the second half of the year and end the program at the end of this year or early next year.
"Esther George dissented. It's not surprising, given what she has said before publicly. But she has now established herself as a (monetary policy) hawk."
VASSILI SEREBRIAKOV, FX STRATEGIST, BNP PARIBAS, NEW YORK
"No major surprises. This is just really a message of steady policy.
"There's certainly no indication of tempering or stopping asset purchases. When you look at the latest U.S. data, it's quite clear that we're quite far from this substantial improvement in the labor market that the Fed is looking for.
"The dollar is a little bit undecided. There's not a lot of new information here, so it doesn't suggest any immediate reason to sell the dollar. But it confirms that the overall dollar backdrop remains negative because QE continues."
FRED DICKSON, CHIEF MARKET STRATEGIST, D.A. DAVIDSON & CO., LAKE OSWEGO, OREGON:
"No real surprises. The statement came out pretty much not only as I expected, but as the market expected. No change in timing of the bond purchases; that's probably what most people are looking for. The market reacted in a way that said the Fed delivered what was expected. Little movement.
"It looks like the Fed is just going to maintain a 'steady as she goes' policy. We're not expecting to even hint at a change."
JULIA CORONADO, CHIEF NORTH AMERICAN ECONOMIST AT BNP PARIBAS, NEW YORK:
"So as expected I think it's a message that policy is steady as she goes, the changes are relatively minor. They didn't overreact to the negative GDP print. They're kind of smoothing through that but nor are they backing away from their aggressive policy stance. I think that the signal here is continued commitment... I think what we're seeing in the economy is - the markets haven't really been reacting to it - but the economic news has been a little bit on the weak side. What we expect is the economy will somewhat underperform the Fed's baseline forecast, and that they'll end up continuing QE at a lesser pace, but continuing it into 2014."
AXEL MERK, PRESIDENT, MERK INVESTMENTS, PALO ALTO, CALIFORNIA
"The goal was to prevent the bond market from selling off and to provide clarity after the recent confusing FOMC minutes. As such, the statement is much as expected. They are being clear that they are going to stay the course."
TANWEER AKRAM, SENIOR ECONOMIST, GLOBAL RATES, FIXED INCOME, ING INVESTMENT MANAGEMENT, ATLANTA, GEORGIA:
"The statement was largely as expected. The assessment of the economy includes weather related disruption. Apart from that the economy is viewed as growing at a moderate pace while unemployment remains elevated. The Fed left its purchases of $85 billion a month in securities open-ended. Esther George, who is hawkish, was the only dissent.
"The Fed maintained a dovish stance even though the economy shows some signs of improvement, particularly in housing. Fourth-quarter GDP was weak mostly because of a drop in defense spending and due to inventories and that's likely to be temporary. The Fed noted that strains in global financial markets have eased somewhat and that's true; yields on periphery sovereign debt have declined.
"I believe those $85 billion a month in purchases by the Fed will continue for the rest of the year. The Fed is very much inclined at this time to continue to do that at least for this year because it's not clear that economic activity and employment growth will be sufficiently strong to get to a 6.5 percent unemployment rate anytime this year."
MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON, NEW YORK:
"This was broadly in line with expectations. The 10-year yield moved up to 2.03 (percent) briefly but came off very quickly. The euro, meanwhile got as high as $1.3587, a session high. So the mood of the market has not changed much at all. And certainly after the U.S. data this morning, particularly the GDP report, we can expect the Fed to continue with their very accommodative monetary policy, and that's negative for the dollar."
JOHN DOYLE, CURRENCY STRATEGIST, TEMPUS CONSULTING, WASHINGTON:
"It's basically just more of the same, especially in terms of the amount of stimulus there. Looking back, it's going to be a non-event in terms of what it does to the direction of the U.S. dollar."
STEVEN RICCHIUTO, CHIEF ECONOMIST, MIZUHO SECURITIES USA, NEW YORK
"There's nothing to say, it's complete and utter boilerplate. There's nothing exciting, there's nothing new, there's nothing really to debate about the discussion. They're basically saying that the economy is stalled, they think that's all temporary, that was reflected in the data today, and that they're going to maintain their accommodative policy profile until all the thresholds they've established are reached. And that's all you were ever going to get from these people."
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
"It is interesting that the Fed decided to focus on the GDP report, pointing to how activity slowed because of transitory factors. That sums up the GDP report. I am a bit puzzled why the Fed focused solely on one report. I would argue that this was a slightly dovish report."
STOCKS: U.S. stock indexes edged lower
BONDS: U.S. bond prices pared losses slightly
FOREX: The dollar was stable
(Americas Economics and Markets Desk; +1-646 223-6300)
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