Federal Reserve Leaves Low Interest-Rate Polices Unchanged
The Federal Reserve says the U.S. economy still needs support from the Fed’s low interest-rate policies because it is growing only moderately.
In a statement released Wednesday after a two-day policy meeting, the Fed says it will keep buying $85 billion a month in bonds to keep long-term interest rates low and encourage more borrowing and spending.
It also says it plans to hold its key short-term rate at a record low near zero at least as long as the unemployment rate stays above 6.5 percent and the inflation outlook remains mild.
The Fed again noted that budget policies in Washington have restrained growth, but it made no mention of the 16-day government shutdown. However, the Fed no longer expressed concerns about higher mortgage rates, a concern it flagged in September.
The Fed’s policy decision was approved on a 9-1 vote with Esther George, the president of the Kansas City Federal Reserve Bank, dissenting as she has done at each of the central bank’s seven meetings this year.
At its previous meeting in September, the central bank surprised investors and economists when it chose not to reduce its bond buying. Since then, the partial shutdown shaved an estimated $25 billion from economic growth this quarter. And a batch of tepid economic data point to a still-subpar economy.
Employers added just 148,000 jobs in September, a steep slowdown from August. And temporary layoffs during the shutdown are expected to depress October’s job gain.
Since the September meeting, mortgage rates have fallen roughly half a percentage point and remain near historically low levels. Over the summer, rates had jumped to two-year highs on speculation that the Fed might reduce the pace of its bond purchases before the end of this year.
Few think the Fed will reduce its stimulus any time soon. Many analysts now predict the Fed will maintain the pace of its bond purchases into next year.
If the Fed does start slowing its stimulus in March, it will have left its policy unchanged not just this week but also at its next meeting in December and at its subsequent meeting in late January.
The January meeting will be the last for Chairman Ben Bernanke, who is stepping down after eight years. President Barack Obama has chosen Vice Chair Janet Yellen to succeed Bernanke.
Assuming that Yellen is confirmed by the Senate, her first meeting as chairman will be in March. Many economists think no major policy changes will occur before a new chairman takes over.
Congress’ budget fight has clouded the Fed’s timetable. Though the government reopened Oct. 17 and a threatened default on its debt was averted, Congress adopted only temporary fixes. More deadlines and possible economic disruptions lie ahead.
A House-Senate conference committee is working toward a budget accord. But wide differences separate Democrats and Republicans on spending and taxes. Without a deal by Jan. 15, another shutdown is possible. Congress must also raise the government’s debt ceiling after Feb. 7. If not, a market-rattling default will remain a threat.
The standoff has led economists to trim their forecasts for economic growth in the October-December quarter.
(Copyright 2013 by The Associated Press. All Rights Reserved.)