NEW YORK, May 1 (Reuters) - The U.S. Federal Reserve stuck to its plan to buy $85 billion in bonds each month to push down borrowing costs and prop up the economy, citing risks to growth from recent budget tightening in Washington.
Describing the economy as expanding moderately in a statement that largely mirrored its March decision, Fed officials cited continued improvement in labor market conditions.
But they reiterated that unemployment is still too high for policymakers' comfort, reinforcing their desire to keep buying assets until the outlook for jobs improves substantially. 'Fiscal policy is restraining economic growth,' the Fed said in its policy statement. 'The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation.'
VASSILI SEREBRIAKOV, FX STRATEGIST, BNP PARIBAS, NEW YORK
'The Fed is just kind of showing flexibility, but highlighting that flexibility can be on both sides in terms of both increasing and reducing its purchases.
'It's not a particularly dovish statement in light of the weaker economic data. The takeaway is the Fed is staying the course and if you look at the recent data, it suggests there's no reason for those purchases to be reduced anytime soon.'
AVERY SHENFELD, CHIEF ECONOMIST, CIBC WORLD MARKETS ECONOMICS, TORONTO:
'The FOMC left rates and the pace of bond purchases on hold, and left its description of the economy unchanged as well, with a continued dissent from one member.
'Some might have anticipated a bit more of a cautious view on growth after the downside surprise in the first estimate of Q1 GDP, and some softer figures for March in particular, but the Fed didn't acknowledge any of that, and nor did it change its description of inflation despite the latest news on PCE prices.'
OMER ESINER, CHIEF MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON:
'On balance, the tone of the statement was not as dovish as many would have expected, especially in light of recent downside surprises to U.S. economic data. While the Fed said it stands ready to increase its monthly asset purchases, it also kept the door open to winding down policy stimulus if the economy improves. The dollar initially firmed off of its intra-day lows on the statement.
'As the dust of the FOMC statement settles, investors will surely turn their attention to (Friday)'s key payrolls report for April. Another sub-100K reading of new jobs would fan worries about a Spring economic slowdown and increase the likelihood that the Fed's next move will be an increase in its asset purchase program.'
CHRIS MCREYNOLDS, HEAD OF US TREASURY TRADING, BARCLAYS, NEW YORK:
'It's essentially where I thought they were going to come out. I think the market had gotten itself ready for them to talk more about the exit strategy for the QE and the consensus was for them to say they were going down to 50 billion a month by the end of the year but you clearly didn't get that.
'You got a more even handed approach. You got them saying maintain 85, and the last paragraph says they will adjust as their outlook for growth or inflation changes. If the growth stays where it is but the PCE starts to dip further you could get even more QE. So far we're seeing the bond market come under a little pressure, but it's still up substantially on the day but the curve is steepening a little bit since the announcement, and the commodity market seems to have stabilized a little bit here.'
SAM DIEDRICH, PORTFOLIO MANAGER FOR PAAMCO, IRVINE CALIFORNIA:
'The significant shift in this statement is alluding to the possibility that this program could expand. Even though nothing happened, they met the market's expectations in that they acknowledge that they may have to expand the program
'Even just indicating that they are considering expanding the program with more certainty could have the effect they want, so they may not have to do anything.'
JOHN CANALLY, INVESTMENT STRATEGIST AND ECONOMIST, LPL FINANCIAL, BOSTON:
'This puts more pressure on the minutes to be released later to give details on how much they discussed about the need to increase asset purchases. People had been thinking about a tapering off of purchases. This is QE till it works.
'Data since the last FOMC meeting was pretty weak. But the hurdle for increased asset purchases is pretty high. Overall, this statement was a non-event.
Going into the ECB meeting, it might cut its policy rate and it might give some forward guidance which the most you could expect to get. Those looking for quantitative easing from the ECB will be disappointed.'
MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES AMERICA, NEW YORK:
'The only two things that jumped out in the statement. One was that their language was a little stronger on fiscal policy, saying that fiscal policy is restraining growth. The other was that they are prepared to increase or reduce the pace of bond purchases. They just want to emphasize that the purchase program is meant to be flexible and can be easily adjusted over time. One thing they did not change was their characterization of inflation. I thought they might highlight that inflation was slowing, but they did not do that.'
ANDREW WILKINSON, CHIEF ECONOMIC STRATEGIST, MILLER TABAK & CO, NEW YORK:
'The latest minutes are very little changed in terms of content and suggest the economy continued to expand at a moderate pace. While there was no mention of the recent set of data suggesting at least a softer period for global and domestic growth, the minutes elevated the March observation saying 'fiscal policy is restraining economic growth.'
'The feeling that the economy was subject to downside risks remained a feature, while the Fed hinted that it could alter the amount of its bond purchases in either direction in response to incoming data. We would argue that for the time being the slower period of growth is largely the result of external events while the fiscal headwinds are hampering the Fed's efforts at a reducing pace over time.'
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
'A good way of characterizing this statement is that it is ham on rye. They barely changed anything with its characterization of inflation and economic backdrop and it is virtually identical to the previous statement.'
'This statement is a modest surprise give the recent weak data. It does suggest that the Fed is not fully buying into the idea that economic activity is losing momentum.'
PAUL NOLTE, MANAGING DIRECTOR AT DEARBORN PARTNERS IN CHICAGO:
'Near term there's no change and that's what the markets were looking for.
'They left flexibility to purchase even more than the 85 billion (in monthly bond purchases). Very little change, plenty of liquidity available for the markets.
'We haven't seen a big difference in their comments month to month. There are little tweaks, and it is going to be this way for the foreseeable future.'
ROBBERT VAN BATENBURG, DIRECTOR OF MARKET STRATEGY, NEWEDGE USA LLC, NEW YORK:
'The key sentence was on the Fed and its asset purchases and whether they might taper off purchases. There was no word on that. This was a fairly market neutral statement.
There is reference to core inflation with the PCE going into flatline. The core inflation rate is not moving even with all the stimulus.
Going into Thursday, there are some people who believe that (ECB President Mario) Draghi is in a tough position as there is pressure to pull away from the region's austerity measures. The consensus is that they are going for a rate cut.
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