Expert Views: Fed reduces bond buying, still concerned about labor mkts

(Reuters) - The Federal Reserve on Wednesday pressed ahead with its plan to wind down its bond-buying stimulus and upgraded its assessment of the U.S. economy, while reaffirming it is in no rush to raise interest rates.

STORY: STATEMENT:

KEY POINTS:

* The central bank cut its monthly asset purchases to $25 billion from $35 billion, leaving it on course to shutter the program this fall.

* The Fed reiterated that it would likely keep rates near zero for a "considerable time" after its bond buying ends and restated that an "accommodative" policy was needed.

* The Fed has kept overnight rates near zero since December 2008 and has more than quadrupled its balance sheet to $4.4 trillion through a series of bond purchase programs.

* It cited improving labor market conditions and declining unemployment and acknowledged rising inflation.

* Although Fed Chair Janet Yellen believes the nation's 6.1 percent unemployment rate overstates the health of the jobs market, she warned earlier this month that a rate hike could come "sooner and be more rapid than currently envisioned" if labor markets continue to improve more quickly than anticipated.

COMMENTS:

ANTHONY VALERI, INVESTMENT STRATEGIST, LPL FINANCIAL, SAN DIEGO:

"The statement on balance was slightly dovish in that it somewhat reiterates the lower-for-longer theme. It's not a game changer by any stretch but, on balance, the Fed erred to being slightly dovish.

"One of the key passages was 'a significant underutilization of labor resources'. I think the 'extended period' language also suggests they will take their time to raise rates."

THOMAS COSTERG, ECONOMIST, STANDARD CHARTERED, NEW YORK:

"It shows the Fed quite coolheaded about the strong Q2 GDP reading earlier today. Overall the statement is neutral. There were some tweaks. Overall the Fed remains prudent, but the gap between the hawks and the doves is growing, which might to lead more dissents in a future meeting. A rate hike is on the horizon, but the Fed is in no hurry."

TOM PORCELLI, CHIEF US ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:

"We only expected marginal changes, and for the most part we got that with the caveat that they were a bit more hawkish than was widely expected. I would define it as hawkish as they basically diminished this whole notion of disinflation in their comment. This is a marginal change."

ART HOGAN, CHIEF MARKET STRATEGIST, WUNDERLICH SECURITIES, NEW YORK:

"The real good news in the statement is there is nothing that is eye-poppingly different than consensus. We've seen some better economic data that was spoken to, so mildly hawkish on the pickup in inflation and we knew that after looking at the CPI or the PCE.

"To a certain extent it tells a story that we expected, we got the taper as expected and the real viewpoint of the committee is they can keep monetary policy accommodative even after we reach our inflation and employment goals. So that speaks to that we are going to start raising rates but it's going to be sometime in the first half of 2015 and that is consensus - and consensus gets you a market that rallies. Any expectations for surprise were to a signal of sooner rather than later, meaning the economy has picked up significant steam and we may well have to start raising rates earlier and we didn't get that message whatsoever." 

KIM RUPERT, MANAGING DIRECTOR, ACTION ECONOMICS, SAN FRANCISCO:

"There were no real surprises. Trimming of the taper was as expected, and they upgraded their economic outlook. The Fed shows no sign of changing its policy stance anytime soon."

OMER ESINER, CHIEF MARKET STRATEGIST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON:

"Overall, the statement while mixed, did seem to once again overlook some of the key improvements in the economy recently. The fact that officials still see excess slack in the labor markets as noteworthy suggests a high level of comfort with leaving rates very low."

MARKET REACTION:

STOCKS: Indexes pared some losses

BONDS: Treasury yields rose as bond prices fell

FOREX: The dollar was little changed against the yen and euro

(Americas Economics and Markets Desk; +1-646 223-6300)