As had been expected by most market participants, the rate-setting Federal Open Market Committee (FOMC) last Wednesday decided to further cut back on its bond purchases, also known as Quantitative Easing, or QE.
From February onwards, mortgage-backed securities (MBS) and Treasury purchases will be equally reduced by $5 billion to $30 billion and $35 billion per month respectively.
If the economy and the labour market develop as currently expected by the FOMC, bond purchases will be wound down further in measured steps. The end of 2014 is still the likely date for the complete cessation of the bond-purchase programme.
In the meantime, data released by Germany’s labour agency shows that in January, German unemployment fell significantly more than expected on a seasonally adjusted basis, as it fell to its lowest level in almost a year.
Economists said that the mild winter weather had possibly contributed to the strong performance on the labour front, which, in turn, could bolster private consumption in Europe’s largest economy.
The number of people out of work decreased by 28,000 to 2.927 million, the data showed. This exceeded predications by economists in a Reuters poll for a drop of 5,000.
The jobless rate, meanwhile, held steady at 6.8 per cent in January. December’s figure was revised down to 6.8 per cent from 6.9 per cent reported earlier. Germany’s jobless rate has held steady at just below 7.0 per cent for more than two years and close to a 20-year low.
Finally, according to the US Commerce Department, the country’s GDP, a measure of goods and services generated by the economy, expanded at a seasonally-adjusted annual rate of 3.2 per cent during the fourth quarter of last year.
Although the fourth quarter reading was less than the third quarter’s 4.1 per cent, the final six months of the year were the strongest second half since 2003, when the economy was in an upswing. Rising exports, consumer spending and business investment helped the economy end the year on solid footing.
This article was compiled by Bank of Valletta for general information purposes only.