WASHINGTON -- The Federal Reserve on Wednesday looked past a dismal reading on first quarter U.S. economic growth and announced a cut in its massive bond-buying stimulus, a sign of its confidence in the economy's prospects.
The Fed said in a statement that it would reduce its monthly bond purchases to $45 billion from $55 billion, a widely expected decision that keeps it on track to end the program as soon as October. The decision was unanimous.
At the end of a two-day policy meeting, the central bank said the economy "will expand at a moderate pace and labor market conditions will continue to improve gradually" -- an assessment that tracked its statement last month.
Recent information "indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions," the Fed said in the statement.
The Fed has now reduced its monthly bond purchases by a cumulative $40 billion in four steady steps. The gradual tapering seeks to close an era in which the central bank's balance sheet quadrupled to more than $4.2 trillion through three separate purchase programs launched to battle the financial crisis and recession and the slow growth that followed.
The projected end of the program sets the stage for a series of policy decisions expected next year on when and how to reduce the balance sheet to more usual levels, and, most notably, when to move the target interest rate above the near zero level maintained since late 2008.
%VIRTUAL-article-sponsoredlinks%Janet Yellen's second policy-setting session as Fed chair offered no new guidance on that front. The Fed has said it will keep the overnight target rate between 0 and 0.25 percent "for a considerable time" after the bond-buying program ends -- language reiterated Wednesday.
The Fed's decision to further slow its bond-buying came despite new data showing the economy grew at a disappointing 0.1 percent annual rate at the start of the year. The Fed had already said it anticipated a poor first-quarter result because of a harsh winter in many parts of the United States.
Going forward, the bond purchases will be split between $25 billion of Treasuries and $20 billion of mortgage-backed securities, a cut of $5 billion a month to each.
Analysts expected little out of this session as the Fed's policy committee enters what may prove a sort of holding pattern as it closes out the bond purchases and debates when an initial interest rate increase may be warranted. Investors currently expect the first rate rise around the middle of next year.
With little sign of inflation and unemployment at a still-elevated 6.7 percent, Yellen has said there is plenty of "slack" in the economy and a need to keep rates low.
In an April 16 speech, she said the United States may still be more than two years away from what the Fed views as the "longer-run normal unemployment rate" of between 5.2 percent and 5.6 percent.
"Thus far in the recovery and to this day, there is little question that the economy has remained far from maximum employment," she said.
While the latest report on GDP growth didn't throw the Fed off course, it could influence the discussion going forward. The 0.1 percent annual growth rate was far below expectations.
"This certainly is going to give Janet Yellen's camp a lot more ammunition to remain on the more neutral to dovish side," Richard Cochinos, a currency strategist at Citi (C) in New York, said ahead of the Fed's decision.
It will also focus attention on the next round of data on jobs and inflation as signs of whether what the Fed analyzed as a winter lull was in fact nothing more than that.
-Additional reporting by Daniel Bases in New York.
10 Easy Ways to Pay Off Debt
Fed Sees Strength in Economy, Continues Bond-Buying Cuts
"Your daily habits and routines are the reason you got into this mess," writes Trent Hamm, founder of TheSimpleDollar.com. "Spend some time thinking about how you spend money each day, each week and each month." Do you really need your daily latte? Can you bring your lunch to work instead of buying it four times a week? Ask yourself: What can I change without sacrificing my lifestyle too much?
Remove all credit cards from your wallet and leave them at home when you go shopping, advises WiseBread contributor Sabah Karimi. “Even if you earn cash back or other rewards with credit card purchases, stop spending with your credit cards until you have your finances under control,” she writes.
If you do a lot of online shopping at one retailer, you may have stored your credit card information on the site to make the checkout process easier. But that also makes it easier to charge items you don't need. So clear that information. "If you’re paying for a recurring service, use a debit card issued from a major credit card service linked to your checking account," Hamm writes.
Reward yourself when you reach debt payoff goals. "The only way to completely pay off your credit card debt is to keep at it, and to do that, you must keep yourself motivated," Bakke writes. Just make sure to reward yourself within reason. For example, instead of a weeklong vacation, plan a weekend camping trip. "If you aim to reduce your credit card debt from $10,000 to $5,000 in two months," Bakke writes, "give yourself more than a pat on the back."
“Establish a budget,” writes Money Crashers contributor David Bakke. “If you don't scale back your spending, you'll dig yourself into a deeper hole." You can use personal finance tools like Mint.com, or make your own Excel spreadsheet that includes your monthly income and expenses. Then scrutinize those budget categories to see where you can cut costs.
Sort your credit card interest rates from highest to lowest, then tackle the card with the highest rate first. "By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards," writes Mint.com spokeswoman Hitha Prabhakar.
To make a dent in your debt, you need to pay more than the minimum balance on your credit card statements each month. "Paying the minimum -– usually 2 to 3 percent of the outstanding balance -– only prolongs a debt payoff strategy," Prabhakar writes. "Strengthen your commitment to pay everything off by making weekly, instead of monthly, payments." Or if your minimum payment is $100, try doubling it and paying off $200 or more.
If you have a high-interest card with a balance that you’re confident you can pay off in a few months, Hamm recommends moving the debt to a card that offers a zero-interest balance transfer. "You’ll need to pay off the debt before the balance transfer expires, or else you’re often hit with a much higher interest rate," he warns. "If you do it carefully, you can save hundreds on interest this way."
Have any birthday gifts or old wedding presents collecting dust in your closet? Look for items you can sell on eBay or Craigslist. "Do some research to make sure you list these items at a fair and reasonable price," Karimi writes. “Take quality photos, and write an attention-grabbing headline and description to sell the item as quickly as possible." Any profits from sales should go toward your debt.
If you receive a job bonus around the holidays or during the year, allocate that money toward your debt payoff plan. "Avoid the temptation to spend that bonus on a vacation or other luxury purchase," Karimi writes. It’s more important to fix your financial situation than own the latest designer bag.