US economic activity slowed due to weather

US economic activity slowed during the winter months "in part reflecting adverse weather conditions" whereas the unemployment rate remains elevated, the Federal Reserve said Wednesday. The Federal Open Market Committee (FOMC) said in a statement that fiscal policy "is restraining economic growth, although the extent of restraint is diminishing." It added that "inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable." The Committee expects that "with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate." The Committee recognizes "that inflation persistently below its two percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term." The Committee "currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions." The statement affirmed that "in light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases." Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of USD 25 billion per month rather than USD 30 billion per month and will add to its holdings of longer-term Treasury securities at a pace of USD 30 billion per month rather than USD 35 billion per month. "The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate," the statement said. It added that the Committee "will 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 labor market has improved substantially in a context of price stability." "If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings," it noted. To support continued progress toward maximum employment and price stability, the Committee "reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate." It In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee "will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation." This assessment will take into account "a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments." "The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored," the statement affirmed. It indicated that when the Committee decides to begin to remove policy accommodation, "it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent." The Committee currently 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." "With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee's guidance does not indicate any change in the Committee's policy intentions as set forth in its recent statements," the statement noted.