Fed hints it may ramp up stimulus

 
Julian Harris
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THE US Federal Reserve suggested last night that it could increase the pace of its quantitative easing (QE) programme, if America’s recovery proves more sluggish than expected.

On a day when further bearish data pointed to a possible slowdown for the US economy, the Fed said it will stick with its QE schedule but stands ready to put its foot on the gas if need be.

“Labour market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated,” it said, arguing that “fiscal policy is restraining economic growth” and that inflation remains below its long-run objective.

“The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labour market or inflation changes,” it added – a sentence that was not included in its last statement.

It is currently snapping up $40bn per month of mortgage-backed securities and $45bn in longer-term Treasury securities.

Two separate manufacturing reports, published yesterday, showed the sector slowing. The ISM fell from 51.3 to 50.7, while Markit’s rival purchasing managers’ index (PMI) sank to 52.1 in April, down from 54.6 in March.

Scores have to be above 50 to indicate economic growth.

And the latest ADP study showed the smallest rise in job creation since September, further denting sentiment. Firms added 119,000 employees to payrolls last month, it estimated.