Fed Holds the Line

Posted by Kevin G. Hall on October 30, 2013 

— In line with expectations from Wall Street to Washington, the Federal Reserve Wednesday left intact its unconventional bond-buying program designed to stimulate the sluggish U.S. economy.

The Fed's Open Market Committee chose not to begin tapering back the $85 billion in monthly purchases of government and mortgage bonds, designed to knock down long-term lending rates and promote economic activity.

Signaling that government spending cuts are slowing growth, the Fed said it's bond buying has been helping the economy power through headwinds but added it is not time yet to ease up.

"Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy," said a Fed statement at Wednesday's conclusion of a two-day policy meeting. "However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."

The Fed's reference to "fiscal retrenchment" came as House and Senate budget negotiators held their first meeting Wednesday morning, seeking some way to ease the sting of mandatory budget cuts that threaten to slice another $19 billion out of defense spending, something dear to many congressional districts.

Most mainstream economists now think the earliest the Fed will begin pulling back on its controversial bond buying is March. That'd be the first time that Janet Yellen would be at the helm of the monetary policy meeting. The Fed's vice chairman is the Obama administration's nominee to head the Federal Reserve when Chairman Ben Bernanke steps down next Jan. 31.

Yellen's first confirmation hearing is expected around mid-November, and she is in the process of one-on-one meetings with members of the Senate Finance Committee.

Note: An earlier version of this story referenced slicing another $54 billion out of defense spending. That is from levels prior to the Budget Control Act of 2011. The correct number, when compared to defense spending in Fiscal Year 2013, is $19 billion.

 

 

 

McClatchy Washington Bureau is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service