Economic Update

Economic Indicators The U.S. Federal Reserve on Wednesday scaled back its aggressive bond-buying program but sought to temper the markets by suggesting its key interest rate would stay at record low levels well past the time that unemployment rate declines below 6.5 percent, especially if inflation continues to run well below the 2 percent target. What is likely the beginning of the end of the Fed’s unprecedented support of the U.S. economy; the central bank said it would reduce its asset purchases by $10 billion per month scaling back $5 billion each from MBS and Treasuries starting in January. The Committee didn’t give any hints on the future pace of tapering, which is modestly dovish, however assuming U.S. jobs gains continues as expected, bond purchases would be cut at a measured pace and likely wound down late in 2014. 

The Fed’s Quantitative Easing (QE) program was introduced in the midst of the financial crisis in 2008 and the latest round was introduced 15 months ago to help kick start hiring and growth in the economy in a slow recovery from the Great Recession. The program was designed to put downward pressure on long-term borrowing costs to stimulate investment and hiring. Today, the central bank’s forecast has the U.S. reaching a 6.5 unemployment rate by the end of 2014.

Real Gross Domestic Product 2003-2013

Looking at some economics, GDP data today showed that the rate of expansion in Q3 of this year put the annualized rate of GDP growth at 4.1%, up from previous estimates of 3.6%. This is the strongest rate of growth since Q4 of 2011. U.S. stocks rose with the S&P 500 poised for the biggest weekly gain in 3 months. On the score board, the DJIA added +0.33% trading at 16,232 as the S&P 500 added +0.43% trading at 1,817.

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