Nippori Group: The Fed has opted to cut the amount of US treasuries and mortgage-backed securities it buys by another $10bn a month to $45bn.
June 15, 2014 (Newswire) - Nippori Group, The US Federal Reserve has announced a further cut in the amount of assets it buys as part of its quantitative easing program. The central bank continued to taper purchases and announced that in the month of May it will reduce purchases by $10bn to $45bn from $55bn per month.
The decision follows more encouraging economic data emerging from the world's biggest economy and an upbeat ADP private payrolls report which showed a healthy uptick in US job growth in April ahead of the Labor Department's official nonfarm payrolls report.
"While the Fed may feel confident enough to continue tapering stimulus, we're not so optimistic. There are some clear signs that all is not well with the economic recovery. US GDP grew by a paltry 0.1% in the first quarter but everyone is writing that off as a blip because of the bad weather that ravaged parts of the country earlier this year," said an Nippori Group researcher.
"We don't think it was a blip and we maintain our view that the recovery is being driven by the remnants of record stimulus measures that have shown up in asset prices like stocks and bonds. It will unravel soon enough," the analyst added.
Analysts are expecting a nonfarm payrolls number of 215,000 for April which, if achieved, will boost hopes that the employment recovery is on a sustainable footing but according to the "Nippori Group" researcher, the firm believes the economy has yet to reach a rate of expansion capable of supporting those expectations over the mid to long-term.
"We would like to see US GDP with a 3% read but we think it will fall short of that this year because the rest of the world is slowing down," concluded the Nippori Group analyst.
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