Fed, awaiting sustainable growth, extends its stimulus
- Article by: BINYAMIN APPELBAUM
- New York Times
- October 30, 2013 - 9:11 PM
WASHINGTON – The Federal Reserve is still waiting for clear evidence that the economy can grow decently without its help.
The Fed’s widely expected announcement Wednesday that it would press ahead with its stimulus campaign of asset purchases and low interest rates reflected the reality that the nation’s central bankers gained little clarity in the six weeks since their last meeting, in part because the government shutdown delayed and distorted key economic indicators.
The statement, issued after a scheduled two-day meeting of its policymaking committee, amounted to a declaration that the Fed is not yet ready to decide, and it shed little light on how soon changes may come.
The Fed maintained its optimistic assessment of “growing underlying strength in the broader economy,” contrasting the recovery of the private sector with the continued drag of federal spending cuts. It said that the availability of jobs was improving and that it expected inflation to rebound from its sluggish pace. Notably, it made no direct mention of the shutdown.
But despite the relatively sunny forecast, the central bank will continue to add $85 billion a month to its portfolio of Treasury and mortgage-backed securities and to hold short-term interest rates near zero well into 2015.
Analysts and investors reacted to the statement as moderately increasing the chances that the Fed would begin to taper its purchases in December. Stocks fell slightly; the Dow Jones industrial average lost 61.59 points, or 0.4 percent, to 15,618.76. The Standard & Poor’s 500 index fell 8.64 points, or 0.5 percent, to 1,763.31.
Yet most analysts said they continued to regard the Fed as more likely to wait until the spring.
Some analysts saw the Fed’s upbeat description of the job market as evidence of its desire to retreat, even if it is not prepared to set that in motion yet.
Inflation has fallen well below the 2 percent annual pace the Fed has established as its goal. Prices rose in August at an annual pace of 1.2 percent, excluding food and fuel, according to the Fed’s preferred measure, the Commerce Department’s index of personal consumption expenditures.
Some Fed officials, and outside critics, are questioning whether the asset purchases were worthwhile.
“With the benefits of quantitative easing essentially at zero, this equivocating action by the Fed is less about the economy and more about its unwillingness to begin the tapering that everyone knows must begin,” Rep. Kevin Brady, R-Texas, chairman of the congressional Joint Economic Committee, said in a statement.
Wednesday’s decision was supported by nine of the 10 voting members on the Fed’s policymaking committee. Esther George, the president of the Federal Reserve Bank of Kansas City, dissented as she has done at each meeting this year, repeating her concerns that the Fed’s campaign risks destabilizing financial markets and unleashing inflation.
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