(MENAFN– ecpulse) The Federal Open Market Committee (FOMC) agreed Wednesday to keep its benchmark interest rate unchanged at a record low between 0.0% and 0.25%, and refrained from the highly expected tapering for its quantitative easing program.
The market had expected the Fed to keep the interest rate unchanged, but investors were expected the Central Bank to scale-back its monthly treasury purchases by $10 billion to $35 billion.
Bernanke initially signaled on May 22 that the central bank my reduce its monthly bond purchases
The Federal Reserve said that a move to tighten financial conditions could notable slow U.S. growth, and that its stimulus program is not on a preset course.
Fed officials said the U.S. economy need more evidence of growth before tapering.
The Fed will continue to reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in a monthly $40 billion of mortgage-backed securities (MBS).
Interest rate
Most Fed officials see the first rise in benchmark interest rates sometime in 2015.
The Fed has pledged to keep the interest rate ultra low, as long as the unemployment rate stay above 6.5% , with inflation staying below 2.5%.
The Fed said it would keep interest rates at historic lows near zero and that it would continue its bond buying program, known as quantitative easing, aimed at keeping the central bank`s pedal to the metal on stimulating growth.
The world’s largest economy is now threatened by the limit on the federal budget. The debt ceiling would be reached before the new budget year on October 1.
Until now, there are little signs of an agreement between Republicans and Democrats over a new budget.
House GOP leaders Wednesday announced that they will move quickly to raise the government`s borrowing cap by attaching a wish list of GOP priorities like blocking "Obamacare," forcing construction of the Keystone XL pipeline and setting the stage for reforming the loophole-cluttered tax code.
Federal Reserve Projections
The Federal Reserve also revised its projections for growth, unemployment, and inflation as follows:
Growth forecast
In 2013, real GDP to be between 2.0% to 2.3%, revised lower from 2.3% to 2.6% in the central bank’s last projections on June 19.
2014 growth forecasts were revised also lower to 2.9% to 3.1%, from 3.0% to 3.5% in the last forecast.
2015 growth forecast should be between 3.0% and 3.5%, revised from 2.9% to 3.6%.
Unemployment forecast
As for unemployment, the Fed saw unemployment rate in 2013 drop into the range between 7.1% and 7.3%, from 7.2% to 7.3%.
Unemployment in 2014 is estimated to become between 6.4% and 6.8%, compared with the last forecast at 6.7% to 7.0%.
2015 unemployment forecast are revised higher from 5.8-6.2% to 5.9-6.2%.
Inflation
The PCE price index is projected to be at 1.1-1.2% in 2013, higher than the previous projections at 0.8-1.2%.
In 2014, inflation is to be between 1.3% and 1.8%, revised lower from 1.4-2.0%.
2015 inflation is projected at 1.6-2.0%, unchanged from last forecast.
The Core PCE price index, which excludes volatile items such as energy and food, is estimated be at 1.2-1.3% in 2013, unchanged from the last forecast.
2014 core inflation was also revised lower to 1.5-1.7% from 1.5-1.7%..
In 2015, core inflation is projected in 1.7-2.0%, unchanged from last projections
Mr. Bernanke will hold a press conference at 19:30 GMT to where he will be delivering new projections for growth, inflation and unemployment for the next three years.
Markets
Wall Street indices jumped after the Federal Reserve`s policy-making committee`s decision to leave its stimulus intact.
Wall Street had been slightly lower for the day, but indexes suddenly rebounded after the Fed`s announcement at 2 p.m. The Standard & Poor’s 500 index gained 0.6 percent, the Dow Jones industrial average was 0.5 percent higher and the Nasdaq composite gained 0.4 percent.
The S&P 500 index briefly hit an intraday record high of 1,721.27. The benchmark index climbed above its all-time high of 1,709.67 reached on Aug. 2.
Bernanke initially signaled on May 22 that the central bank my reduce its monthly bond purchases, sending the U.S. Dollar Index to the highest level of the year.
The dollar was around a three-month low after the decision. The U.S. dollar slipped 0.7 percent to $1.3448 per euro and fell 0.8 percent to 98.34 yen .
The Dollar Index , which tracks the perforamcne of the U.S. dollar against a basket of other major currencies, dropped 0.7 percent to 80.61, the lowest since June 9.
Spot Gold jumped over $45 after the report to $1345.13 per ounce.
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