FED’s Yellen makes … changes

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With US economy climbing tentatively out of its winter weak spot, the Fed did not change the pace of tapering its asset purchases, trimming a further USD 10 billion off the QE programme so that it is now buying USD 55 billion worth of assets per month. Fed chair Janet Yellen confirmed the Fed will keep up this pace and that the programme will end this year.

With Yellen indicating that the fed funds rate would be kept at 0%-0.25% for six months after QE ends, 2015 looks likely to see the first rate hike. The Fed dropped the 6.5% unemployment rate as a trigger for policy tightening, instead focusing on factors including labour market trends, inflation and financial conditions. The Fed is back to business as usual.

With Yellen’s emphasis on recent labour mark improvements, bond yields rose and the equity market lost ground.

Joost van Leenders

Chief economist, Multi Asset Solutions, CFA charterholder

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