Despite cutting its forecasts for the rest of the year, the US Federal Reserve thinks the American economy is over the first quarter big freeze and trending nicely higher, along with the labour market.
After a two day meeting in Washington, the US central bank trimmed its bond purchases to $US35 billion, as expected. It was the fifth consecutive reduction in the size of the monthly buying spree.
The news was welcomed by US markets which all rose noticeably, while the Aussie dollar also firmed sharply to regain the 94 US cents mark.
The S&P closed at yet another new record of 1,957, up 0.77%, while the Dow and the Nasdaq were up 0.6%.
But the US central bank offered no clear signal about when it will start raising the key Federal Funds rate.
Most economists reckon the first rate increase is still sometime in mid to late 2015.
Inflation has been running below the Fed’s 2% target, and is projected to remain below 2% for the foreseeable future, despite the recent uptick in the inflation rate.
The news saw US markets rise after the Fed’s statement, forecasts and the media conference by chair, Janet Yellen.
The Aussie dollar was trading at 94.05 US cents in early Asian trading this morning, making up the ground lost in the dip Tuesday and yesterday.
Our market will start higher with the overnight share futures market showing a gain of around 14 to 15 points, after on;y being up four points just after 5 am.
The post meeting statement issued in Washington was nearly identical to the one the Fed issued after its last meeting in April, reiterating its plan to keep short-term rates low "for a considerable time" after it ends its bond purchases, which have been intended to keep long-term loan rates low.
The new economic forecasts were issued separately while Fed chair, Janet Yellen the media conference.
Gold rose $US2 an ounce in late trading to $US1,274. US oil eased fractionally top just over $US106 a barrel.
In the new forecasts, the Fed said growth for 2014, had been damaged by the harsh winter which had caused the economy to shrink in the January-March quarter.
The Fed expects growth to be just 2.1% to 2.3% this year, down from 2.8% to 3% in its last forecasts issued in March.
It thinks inflation will be a slight 1.5% to 1.7% by year’s end, near its earlier estimate. That’s despite the rise in the Consumer Price Index in the past three months.
It foresees the US unemployment rate, now at 6.3% easing to 6% to 6.1% by the end of this year. That’s down from 6.3% forecast in March.
The slight changes in the Fed’s statement pointed to signs of a strengthening economy now that a brutal winter has passed.
The statement said economic activity had "rebounded," with gains in the job market, household spending and business investment.
The statement signalled no concern about the recent acceleration in inflation.
The only negative comment was that the housing sector “remained slow.”
That was underlined this week by week new housing data for last month.
