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Fed maintains bond-buying stimulus

October 30, 2013|By Don Lee

WASHINGTON -- The Federal Reserve maintained its massive bond-buying stimulus program at the current level, citing still-high unemployment, a slowdown in the housing market and an economy held back by fiscal policies. 

At the end of a two-day meeting Wednesday, the Fed said in a release that it would keep buying $85 billion of Treasury bonds and mortgage securities a month, in a bid to suppress long-term interest rates and spur economic and job growth. Policymakers also reiterated their pledge to keep the central bank’s benchmark short-term interest rate near zero for a long time.

The announcement was widely expected by analysts and investors, unlike the surprise decision after the previous Fed meeting in mid-September when policymakers stunned financial markets by delaying a much-anticipated reduction of the bond purchases. In September, Fed officials decided against a tapering of their bond-buying program, saying they wanted to wait for more evidence of sustained, solid growth before weaning the economy from the flood of cheap money -- a line that was essentially repeated in Wednesday’s statement.

Since the previous meeting, the economic picture has gotten more muddled, although Fed officials on Wednesday stuck with their description of economic activity as being “moderate."

Still, many analysts believe the federal government’s 16-day shutdown this month hurt economic output and consumer confidence, further slowing the pace of growth projected for the fourth quarter.

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The Fed’s statement did not make an explicit mention of the government shutdown, but it said once again that “fiscal policy is restraining economic growth.” Also, the Fed noted that the recovery in the housing market had “slowed somewhat in recent months” -- a result partly from rising mortgage rates this summer as financial markets were expecting a reduction in the Fed’s bond-buying activity. Rates have since come down.

Fed officials also likely were hesitant to begin a tapering given the disappointingly mediocre job growth in September. Fresh signs Wednesday from the private payroll processor ADP indicated a further weakening of business hiring this month.

What’s more, a government report Wednesday showed consumer prices in September continued to drift below the Fed’s 2% inflation target -- adding to the data and uncertainties that would have given the central bank pause in changing course.

In their latest policy statement, once again approved by all but one of the committee's voting members -- Esther L. George, president of the Federal Reserve Bank of Kansas City -- officials gave no additional hints on the future timing of a reduction in bond-buying. The Fed restated that a decision would be conditioned on economic performance and in particular data on the job market and inflation.

Fed monetary policymakers are scheduled to meet once more this year, on Dec. 17-18, but many analysts do not expect the central bank to begin reducing its bond purchases until early next year.

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