US Fed cuts growth forecasts, continues tapering

The new chair of the Federal Reserve Janet Yellen

The Federal Reserve slashed its forecast for US economic growth from 2.9 per cent to between 2.1 and 2.3 per cent.

Nevertheless, the central bank continued to wind down its stimulus package and even said that it may raise interest rates in 2015.

Bad weather at the start of the year in the US was partly blamed for the Fed’s decision to lower growth forecasts, other than this it said: "Economic activity will expand at a moderate pace and labour market conditions will continue to improve gradually," the Fed said in its policy statement.

"Household spending appears to be rising moderately and business fixed investment resumed its advance."

Policymakers felt confident in their analysis of the economic outlook to reduce its monthly asset purchases from $45 billion to $35 billion a month.

This asset purchase programme has been seen as a key reason why the US economy emerged from recession much sooner than happened in the EU.

As for interest rate projections, Fed officials still foresaw rates beginning to rise next year but perhaps indicating lower than expected economic growth on the horizon the view over long term rates was that they wouldn’t rise as far or as fast as thought in April.