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Despite dismal Q1 growth, Fed continues tapering
April 30, 2014, 6:33 pm

The Federal Reserve, led by Janet Yellen, did not surprise markets when it announced a further cut to its stimulus package [Xinhua]

The Federal Reserve, led by Janet Yellen, did not surprise markets when it announced a further cut to its stimulus package [Xinhua]


The US Federal Reserve announced on Wednesday that it will continue its tapering initiative and shave yet another $10 billion off its bond-buying stimulus programme.

Started in 2009 to pull the US out of recession, the stimulus package has now been reduced from $85 to $45 billion.

A Fed statement said that it found “sufficient underlying strength in the broader economy to support ongoing improvement in the labour market.”

Although the US economy was sluggish during the first quarter of the year registering only 0.1 annual growth, markets reacted with the belief that this was only a temporary setback mostly attributed to the harsher-than-normal winter chill.

They were also given a boost by the Fed’s announcement that the economy was likely to rebound after recovering from the winter.

The Department of Commerce figures – compared to last years fourth quarter growth of 2.6 percent – don’t necessarily address the post-winter recovery with retail and manufacturing sectors registering robust growth.

The strengthening job market was clear in Automatic Data Processing Inc.’s report of additional payrolls in April – a measure of new jobs added in the private sector.

The report showed that 220,000 jobs were added in April, up from the 209,000 figure in March.

The US Bureau of Labor is on Friday expected to deliver further good news when it releases its non-private sector job market statistics.

Analysts except the economy to add over 210,000 jobs – the highest in nearly four years – bringing the unemployment rate back to the 6.6 per cent level held last December.

Two weeks ago, Federal Reserve Chair Janet Yellen said that the US labour market will reach “full employment” in two to three years, and that interest rates are likely to remain unchanged for some time.

 

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