Fed pares May bond purchase limit to $45 bn

The Federal Reserve on Wednesday announced a $10-billion reduction in its monthly bond-buying programme to $45 billion, from $55 billion, as per the programme announced in December last year.

The US central bank would also limit bond purchases to fewer days in May, to make the purchases more efficient, as it continues to reduce the size of its purchase programme, the Federal Reserve Bank of New York said.

The Fed said the planned bond purchases in May would comprise $20 billion in treasuries and $25 billion in mortgage-backed debt.

The Fed on Wednesday also gave a mostly upbeat assessment of the economy's prospects despite a dismal reading on first-quarter US growth.

In May the Fed will buy $20 billion of government bonds on 16 days, compared with $30 billion in treasuries purchases over 18 days in April, according to the Fed's schedule.

The Federal Open Markets Committee (FOMC), which has set goals of maximum employment and inflation of 2 per cent, anticipates that even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run.

Fed also decided to maintain the current 0 to 0.25 per cent target range for the federal funds rate, with the goal - both realized and expected – of maximum employment and 2 per cent inflation.

With little sign of inflation and unemployment at a still-elevated 6.7 per cent, Fed chairperson Janet Yellen said there is plenty of "slack" in the economy and a need to keep rates low.

FOMC said labour market indicators were mixed but on balance showed further improvement despite the elevated unemployment rate. Household spending has, however, been rising.

Fixed investment edged down, while the recovery in the housing sector remained slow and FOMC said 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.

FOMC said it would closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labour market has improved substantially in a context of price stability.