Fed ignores US growth freeze and tapers on

THE FEDERAL Reserve will keep on winding down its quantitative easing (QE) programme in May, as it turns a blind eye to severe winter weather’s dramatic impact on GDP figures released yesterday.

The major slowdown in the US economy in the first three months of the year was much worse than expected, with GDP growth of only 0.1 per cent on an annualised basis. Economists had expected a boost of just over one per cent.

The growth figure slumped from a healthy 2.6 per cent at the end of 2013. Exports were slashed during the quarter, down 7.6 per cent, as ultra-low temperatures spread across much of the US.

Despite the figures, the Fed’s policymakers announced yesterday that its QE purchases will be cut by another $10bn (£5.92bn), falling to $45bn next month. The purchases are down to nearly half the $85bn they stood at when tapering was announced by former Fed chair Ben Bernanke in December.

“Unless there is a very sharp change in the US outlook, we expect tapering to continue in $10bn increments,” said Robert Wood of Berenberg bank, summing up the widespread view that the Fed is likely to stick to its current course, which would see QE end fully by October.

Despite the dreary economic data, the Dow finished the day at a record high yesterday, the first of the calendar year. It rose 45.47 points during the day, and increase of 0.27 per cent, hitting 16,580.84.