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30.04.2014 09:32

Market participants are expecting the Fed will keep monetary policy steady as expected: interest rates will remain unchanged, QE program will be tapered by another $ 10 billion per month

The Fed will announce the results of the April meeting of the Federal Open Market Committee (FOMC) today. Market participants do not expect any surprises. The Fed will keep unchanged interest rates and will taper its asset purchase program at the usual rate of US$10 billion per month to US$45 billion per month.

Recently, there is a slowdown in the U.S. housing market. Building Permits could not exceed 1 million permits, while new home sales has been declining for two consecutive months (fell to 384,000 in March).Existing home sales has been decreasing for seven consecutive months (declined to 4.59 million in March). Nonetheless, the U.S. economy is continuing to grow. It is sufficient reason for Fed to continue tapering its asset purchase program. The fact of the economic activity growth has been noted in the Fed's "Beige Book", published last week.

The recent comments of FOMC members support the Fed’s decision to taper its asset purchase program. In particular, the Federal Reserve Bank of Dallas President Richard Fisher said he did not see any reason not to continue tapering the Fed’s asset purchase program. Earlier, Fischer expressed confidence that the QE (Quantitative Easing) will be completed in October. This opinion is also shared by the Federal Reserve Bank of Atlanta President Dennis Lockhart. On the other side, the Federal Reserve Bank of Boston President Eric Rosengren said the tapering of asset purchase program should be adapted to the economic situation. The Federal Reserve Bank of Minneapolis President Narayana Kocherlakota supports the 10 billion U.S. dollar tapering of asset purchase program.

At the same time, some Fed members expressed concerns about declining inflation. For example, the Federal Reserve Bank of St. Louis President James Bullard said it is possible to stop tapering of QE program if inflation will slow down. But Bullard is not a voting member of the FOMC in this year.

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