In A Surprise Move, Fed Holds Steady On Economic Stimulus
Filed by KOSU News in Business.
September 18, 2013
The Federal Reserve said today that it is not slowing down its monthly purchase of $85 billion in bonds.
The program is intended to stimulate a sluggish economy and the Fed was widely anticipated to announce that in light of a recovering economy, it was tapering the bond-buying program. Today, it delivered a surprise.
In a statement issued after a meeting of the Federal Open Market Committee, the Fed said it was awaiting more data on the health of the economy before making a decision on the stimulus program:
“Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”
In the past the Fed has spooked the markets, when it hinted that the program may be coming to an end. So, as you might expect, the markets reacted joyously at today’s announcement.
The Fed also kept its short-term interest rate near zero and released its updated economic projections (pdf). The Wall Street Journal reports that most Fed officials expect the interest rate to rise in 2015 or later.
The paper adds:
“New Fed forecasts for the economy and monetary policy show most officials expect to keep interest rates low well into the future. Ten of 17 Fed officials said they expected the central bank’s benchmark interest rate, which is called the fed funds rate, to be at or below 2% by the end of 2016. 14 of 17 officials said they don’t expect the Fed to start raising the fed funds rate until 2015 or later.
“The forecasts also highlight the complex economic environment that Fed Chairman Ben Bernanke confronts. Fed officials, who have been consistently disappointed by economic growth, nudged down their growth forecast for this year and next year, projecting growth between 2% and 2.3% in 2013 and between 2.9% and 3.1% in 2014. Yet Fed officials’ view of unemployment hasn’t changed much. They expect the jobless rate to keep falling to between 7.1% and 7.3% by the end of next year, which is little changed from their June projections.”
Fed Chairman Ben Bernanke is scheduled for a press conference at 2:30 p.m. ET. We’ll update this post with what he has to say. [Copyright 2013 NPR]