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Federal Reserve Continues QE3, Improves Outlook for Unemployment

Revises downward GDP forecast.

4:02 PM, Mar 20, 2013 • By WHITNEY BLAKE
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In a press conference today, the Federal Reserve announced it will keep interest rates low and leave QE3 unchanged, continuing to buy $85 billion a month in bonds to prop up the economy.

The Fed pegs the unemployment rate at 7.3 percent to 7.5 percent for this year, slightly better than their previous prediction three months ago of 7.4 percent to 7.7 percent. Next year’s forecast is 6.7 percent to 7 percent, also an improvement from the older estimate of 6.8 to 7.3 percent. For the first time, the Fed's 2015 prediction indicates the unemployment rate will be at or under 6.5 percent, the target rate for ending QE3. Previous estimates put 2015's unemployment rate at 6.0 to 6.6 percent.

However, Bernanke cautioned in the press conference that the Fed will also take into account hiring rates, quit rates, and jobless claims.  

On raising interest rates:

"The FOMC expects to stop buying bonds a long time before it begins raising interest rates, Bernanke says.

"That suggests the bond buying program could end later this year or early next year, with the first rate hike coming in 2015."

On Cyprus, Bernanke is not terribly concerned:

"Bernanke is asked why the Fed removed language about the fraility of global markets just as Cyprus is exploding.

"'I don’t think that the impact has been enormous,' Bernanke says. He doesn’t see a major risk to the U.S. economy from Cyrus."

The only negative news was a slight downward revision of the GDP forecast.

"The Fed trimmed its gross domestic product projections, forecasting 2.3% to 2.8% growth in 2013, down from 2.3% to 3% previously. Likewise, the Fed now sees GDP growth of 2.9% to 3.4% next year, down slightly from 3% to 3.5% earlier."

The markets responded positively to the news overall, with the Dow up 56 points and the Nasdaq 25 points. 

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