The US Federal Reserve says the US economy still needs support from the Fed’s low interest-rate policies because it is growing only moderately.
In a statement released on 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 per cent 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 1,48,000 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.