KUALA LUMPUR: CIMB Economics Research expects the US Federal Reserve to stick with its monetary easing bias, at least up to 1H11.
It said on Thursday, Jan 27 the Fed continues to expect the key short-term interest rate to remain 'exceptionally low' for an 'extended period'.
'In our view, any sign of rising inflation expectations and sustained improvement in the labour market will prompt the Fed to signal a tentative review of its bond purchase programme. We expect a modest rise in the Fed funds target rate to 0.75% by end-2011,' it said.
CIMB Economics Research it was widely expected that during the meeting on Wednesday that the Fed would decide to leave its target rate at 0.0%-0.25% and reaffirm its commitment to the US$600 billion bond purchase programme.
It said the Fed continued to signal guarded optimism over the economy despite more tentative signs of a sustained pace of recovery. It noted that while the economic recovery is continuing, the rate has been insufficient to bring about a significant improvement in labour market conditions.
Other factors restraining growth, i.e. high unemployment, modest income growth, lower housing wealth and tight credit, refused to go away. Employers remain reluctant to add to payrolls and the housing sector is still depressed.
CIMB Economics Research said the Fed was not likely to signal a change in monetary policy until the labour and housing markets show a sustained recovery.
The policymakers acknowledged that commodity prices have risen but said that long-term inflation expectations remain stable and the measures of underlying inflation continue to trend downward.
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The Fed reiterated that it will continue with the US$600 billion bond purchase programme to the end of 2Q11.
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That said, it added that it will regularly review the pace of its securities purchases and the overall size of the asset-purchase programme with an eye on incoming information and how the outlook is changing. The Fed will adjust the programme accordingly so as to foster maximum employment and price stability.
It said on Thursday, Jan 27 the Fed continues to expect the key short-term interest rate to remain 'exceptionally low' for an 'extended period'.
'In our view, any sign of rising inflation expectations and sustained improvement in the labour market will prompt the Fed to signal a tentative review of its bond purchase programme. We expect a modest rise in the Fed funds target rate to 0.75% by end-2011,' it said.
CIMB Economics Research it was widely expected that during the meeting on Wednesday that the Fed would decide to leave its target rate at 0.0%-0.25% and reaffirm its commitment to the US$600 billion bond purchase programme.
It said the Fed continued to signal guarded optimism over the economy despite more tentative signs of a sustained pace of recovery. It noted that while the economic recovery is continuing, the rate has been insufficient to bring about a significant improvement in labour market conditions.
Other factors restraining growth, i.e. high unemployment, modest income growth, lower housing wealth and tight credit, refused to go away. Employers remain reluctant to add to payrolls and the housing sector is still depressed.
CIMB Economics Research said the Fed was not likely to signal a change in monetary policy until the labour and housing markets show a sustained recovery.
The policymakers acknowledged that commodity prices have risen but said that long-term inflation expectations remain stable and the measures of underlying inflation continue to trend downward.
''
The Fed reiterated that it will continue with the US$600 billion bond purchase programme to the end of 2Q11.
''
That said, it added that it will regularly review the pace of its securities purchases and the overall size of the asset-purchase programme with an eye on incoming information and how the outlook is changing. The Fed will adjust the programme accordingly so as to foster maximum employment and price stability.
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