Contrary to what the right wing wants you to believe, the economy has rebounded under President Obama. The Federal Reserve’s latest press release proves that point — “growth in economic activity has rebounded in recent months.” The Fed cut its economic forecast for 2014, retreating from its stimulus activities. This latest news comes as applications for unemployment benefits fell to 312,000 last week, which is near pre-recession levels.
Labor market indicators generally showed further improvement. The unemployment rate, though lower, remains elevated. Household spending appears to be rising moderately and business fixed investment resumed its advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.
The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in July, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $15 billion per month rather than $20 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $20 billion per month rather than $25 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.
The big takeaway from this press release is that Fed Chair Janet Yellen isn’t giving up on the long-term and shadow unemployed. She admitted that “it’s conceivable there is some permanent damage” to the long-term unemployed but is still very optimistic that a faster recovery would get more people back into the labor force.