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Federal Reserve holds steady on stimulus, interest rates

October 24, 2012|By Jim Puzzanghera
  • The Marriner S. Eccles Federal Reserve building in Washington, D.C.
The Marriner S. Eccles Federal Reserve building in Washington, D.C. (Andrew Harrer/Bloomberg )

WASHINGTON -- Federal Reserve policymakers on Wednesday held steady on their new stimulus program, launching no new initiatives while saying there has been some improvement in household spending and an uptick in inflation since the effort began last month.

In a statement after its two-day meeting, the Federal Open Market Committee left short-tern interest rates unchanged and reiterated that it planned to keep them at their current level at least through mid-2015 because of the struggling economy.

Six weeks after the Fed fired what might be its last bullet to try to strengthen the recovery, analysts did not expect the central bank to make any major new announcements Wednesday. And Fed policymakers complied, making only some slight revisions in its view of economic conditions from their statement at the end of September's meeting.

The assessment of overall growth was the same, with the Fed saying that "economic activity continued to expand at a moderate pace in recent months." Despite recent signals of a housing recovery, the Fed reiterated that the sector "has shown some further signs of improvement, albeit from a depressed level."

The only changes in language came in referring to household spending, which the Fed said "has advanced a bit more quickly" and to inflation, which the Fed warned had "recently picked up somewhat, reflecting higher energy prices."

The Fed announced Sept. 13 that it would start buying $40 billion worth of mortgage-backed securities every month to try to stimulate stronger job growth.

Unlike two earlier rounds of such stimulus, the Fed left the program open-ended. The purchases would continue, it said, until the labor market improved substantially.

The Fed on Wednesday repeated that promise.

The goal of the stimulus -- also known as quantitative easing -- is to help drive mortgage rates lower to stimulate the housing market. And mortgage rates have fallen since mid-September. The average 30-year fixed-rate mortgage was 3.37% in the week ending Oct. 18,  just off a record low of 3.36% set two weeks earlier, according to Freddie Mac.

In recent weeks, the housing market has shown signs of a rebound. On Wednesday, for example, the Commerce Department reported new home sales rose 5.7% in September from the previous month to the highest annualized rate since April 2010.

The Federal Open Market Committee will not meet again until December, after the presidential election.

"Unless things take a turn for the worse, Fed policy is unlikely to change at the December meeting, and QE ad infinitum will continue with low rates expected through at least mid-2015," said Jason Schenker, president of Prestige Economics.

 US 30 Year Mortgage Rate Chart

US 30 Year Mortgage Rate data by YCharts


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