FED Waits For Pick Up Keeps $85b QE

The Federal Reserve decided to press on with $85 billion in monthly bond purchases, saying it needs to see more evidence that the economy will continue to improve.

“The recovery in the housing sector slowed somewhat in recent months,” the Federal Open Market Committee said today at the end of a two-day meeting in Washington. “Fiscal policy is restraining economic growth.”

Bernanke is pushing unprecedented accommodation into the final months of his Fed chairmanship as he seeks to shield the four-year economic expansion from the impact of higher borrowing costs and this month’s partial U.S. government shutdown. The 16-day closing resulted in the furloughs of as many as 800,000 federal workers and delayed release of data the Fed says it needs to evaluate the economy.

“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,” the committee said. The Fed repeated that it will “await more evidence that progress will be sustained before adjusting the pace of its purchases.”

The Fed’s purchases will remain divided between $40 billion a month of mortgage bonds and $45 billion in Treasury securities.

The central bank left unchanged its statement that it will probably hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.
The Fed repeated that inflation “has been running below the committee’s longer-run objective but longer term inflation expectations have remained stable.”

Bloomberg

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