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BUSINESS
Janet Yellen

Fed continues to reduce stimulus

Paul Davidson
USA TODAY
The U.S. Federal Reserve

Federal Reserve policymakers agreed Wednesday to continue winding down their stimulus program despite anemic first-quarter growth, noting that the slowdown was partly weather-related.

In a statement after a two-day meeting, the Fed said it will reduce its monthly government bond purchases to $45 billion from $55 billion. The purchases are intended to hold down long-term interest rates and stimulate the economy.

Recent reports show that "growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," the Fed statement said.

The Fed said that "household spending appears to be rising more quickly." But it added that business investment "edged down, while the recovery in the housing sector remained slow."

With job growth accelerating since the bond-buying began in September 2012, Fed Chair Janet Yellen recently said policymakers will steadily pare the bond-buying and end it in the second half of 2014, barring a "notable" change in the economic outlook.

The Commerce Department said earlier today that the economy grew at an annual rate of just 0.1% in the first quarter, much weaker than the modest 1.1% growth that was anticipated. But Yellen recently said Fed officials believe bad weather was a significant reason for feeble economic data early this year.

Other temporary factors also contributed to the economy's disappointing first-quarter performance, including a fall in exports and a slowing in the growth of business inventories after a rapid build-up late last year.

Recent reports showed employment, factory production and retail sales rising in March as the weather improved.

In December, the Fed began trimming its $85 billion in monthly purchases of Treasury bonds and mortgage-backed securities. Along with the improving economy and labor market, Fed officials cited the program's growing risks, such as the potential formation of bubbles in real estate and other assets.

The Fed on Wednesday also reiterated that it will keep its benchmark short-term interest rate near zero "for a considerable time" after the bond purchases end, especially if inflation remains well below the Fed's annual 2% target. At its March meeting, the Fed eliminated its 6.5% unemployment-rate threshold for considering the first rate hike, saying it will instead review a mix of labor-market indicators.

The jobless rate has fallen rapidly, from 8.1% when the Fed began the bond purchases to 6.7% recently, but much of the decline is the result of Americans giving up their job searches, which means they're no longer counted as unemployed. March forecasts by Fed policymakers project the Fed's first rate hike occurring in mid-2015.

Minnesota Fed chief Narayana Kocherlakota, who had dissented to the change in interest-rate guidance last month on concerns it could crimp growth, voted in favor of the statement Wednesday.

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