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Fed holds steady on its easing policies
Question of the Day
The Federal Reserve maintained its easy-money policies Wednesday, noting that federal budget cuts and shutdowns continue to weigh on growth and, as a result, the economy continues to need support.
“Fiscal policy is restraining growth,” the central bank said in a statement after a two-day meeting of its rate-setting committee, which did not specifically mention the 16-day government shutdown earlier this month but alluded to it and the $85 billion of across-the-board federal budget cuts implemented earlier this year.
“Taking into account the extent of federal fiscal retrenchment over the past year,” the statement said, the economy seems to be exhibiting “growing underlying strength,” which has enabled it to continue growing steadily at a 2 percent or so pace, despite being buffeted by two bouts of budget impasses between Congress and the White House this year.
Still, the strengthening in the underlying economy is not robust enough to justify an end to the Fed’s bond-buying program, the statement said. The Fed has been purchasing $85 billion a month in Treasury and mortgage-backed bonds to inject additional liquidity into financial markets in hopes of speeding the recovery.
The Fed emphasized that it will continue its easing campaign until it sees convincing signs of a self-sustaining recovery in the labor market.
“They’re awaiting a clearer picture of how the economy is faring in the face of disruptions caused by the government shutdown and budget crisis,” said Chris Williamson, economist at Markit. “It seems likely that the Fed will need to wait several months before the picture clears sufficiently.”
The Fed’s decision to stand pat, which provoked dissent from only one member of the committee, was largely expected in financial markets. Most stock indexes were down slightly after the announcement. The meeting was the first for the rate-setting panel since President Obama nominated Fed Vice Chairwoman Janet Yellen to take over when Fed Chairman Ben S. Bernanke steps down early next year.
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