Sign In | Create an Account | Welcome, . My Account | Logout | Subscribe | Submit News | Contact Us | Home RSS
 
 
 

Fed leaves low interest-rate policies unchanged

October 31, 2013
By MARTIN CRUTSINGER , The Associated Press

WASHINGTON - The Federal Reserve says its low interest-rate policies are still needed to invigorate a subpar U.S. economy.

In a statement Wednesday after a policy meeting, the Fed said it would keep buying $85 billion a month in bonds to keep long-term rates low and encourage borrowing and spending.

Yet the Fed seemed to signal that it thinks the economy is improving despite some recent weak data and uncertainties caused by the partial government shutdown.

Article Photos

AP PHOTO
The decision of the Federal Reserve appears on a television screen on the floor of the New York Stock Exchange Wednesday. The Fed says in a statement after a two-day policy meeting that it will keep buying $85 billion a month in bonds to keep long-term interest rates low and encourage more borrowing and spending.

The Fed no longer expresses concern, as it did in September, that higher mortgage rates could hold back hiring and economic growth. And its statement makes no reference to the 16-day shutdown, which economists say has slowed growth this quarter.

Some analysts said this suggests that the Fed might be prepared to slow its bond purchases by early next year - sooner than some have assumed.

"The tone was probably more positive on the outlook than most people expected," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

Paul Ashworth, an economist at Capital Economics, said he was struck by the absence of any reference to the shutdown. He called the statement "remarkable for what it omits rather than includes."

Ashworth said that if the Fed isn't worried about the economic impact of the shutdown, it might be ready to reduce its stimulus as early as December. He still thinks a pullback is most likely early next year. But Ashworth said the Fed's statement suggests that its timing may have shifted.

Some economists noted that Congress' budget fight has clouded the Fed's timetable for tapering its bond purchases. Though the government reopened Oct. 17 and a threatened default on its debt was averted, Congress passed only temporary fixes. More deadlines and possible disruptions lie ahead.

Without a budget 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.

If the government manages to avert another shutdown in mid-January, Dana Saporta, an economist at Credit Suisse, said, "We could see a taper as soon as the Jan. 29th meeting."

But she added that a continued budget impasse would likely delay any pullback in the Fed's bond purchases until March or later.

Investors seemed to conclude that the Fed might be ready to reduce its stimulus earlier than expected. The Dow Jones industrial average, which had been down 29 points before the Fed issued its statement, closed down 61 points.

And the yield on the 10-year Treasury note, a benchmark for rates on mortgages and other loans, rose from 2.49 percent to 2.54 percent in late-afternoon trading. That suggested that investors think long-term rates may rise because of less bond buying by the Fed.

At the same time, the Fed noted again in its statement that budget policies in Washington have restrained economic growth.

 
 

 

I am looking for: