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Fed talks up economy but gives no hint of earlier rate hike


MARKETWATCH 2:10 PM ET 07/30/14

WASHINGTON (MarketWatch) -- The Federal Reserve on Wednesday said the economy is getting better but stressed that significant slack remains in the labor market as it gave no further clues on when it will start lifting interest rates.

The U.S. central bank gave no hint of timing of the first rate hike and repeated that it expects the lift off to come a "considerable time" after the end of its bond-buying program. A leading hawk on the committee, Charles Plosser of the Philadelphia Fed, dissented.

Read full text of FOMC statement.

As expected, the U.S. central bank voted to continue to slowly trim the size of its bond-buying program. The central bank trimmed the size of their monthly purchases of Treasurys and mortgage-related assets to $25 billion per month from $35 billion previously. Fed Chairwoman Janet Yellen has said the program is likely to end in October.

The statement said labor market conditions had improved, but said "a range of labor market indicators suggests that there remains significant underutilization of labor resources somewhat closer to the Fed committee's longer-run objective."

U.S. stocks (SPX) moved a bit off lows following the release.

The Fed revised its language about inflation.

The central bank took out a warning about low inflation, and replaced it with a statement that "the likelihood of inflation running persistently below 2% has diminished somewhat."

The central bank said that inflation "has moved somewhat closer to the Fed's longer-run objective."

The Fed kept its target short-term interest rate close to zero, where it has been since December 2008.

Markets are already focused on what happens after the bond purchases end. The solid GDP report has raised fears of an earlier rate hike.

Fed officials have been signaling that they don't intend to hike rates until next summer. Markets have generally agreed, expecting the liftoff to come in June.

The Fed statement did not include Yellen's remark during her recent Congressional testimony that rate hikes could come faster and be more rapid if the labor market continues to improve more quickly than the Fed expects.

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-Greg Robb; 415-439-6400; [e-mail]

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07-30-141410ET
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