WASHINGTON, D.C.: The US Federal Reserve left unchanged near-zero interest rates and its massive bond-buying program on Wednesday (Thursday in Manila), citing modest growth in the world’s largest economy.
Wrapping up a two-day policy meeting, the Federal Open Market Committee (FOMC) said that it would continue to buy $85 billion in bonds per month to help tamp down longer-term interest rates that have been supporting the economy, and especially the housing market recovery. The bond-purchase program has filled a gap in the Fed’s toolkit after the central bank slashed its key federal funds rate to zero to 0.25 percent in December 2008 and held it there.
While no one expected a rate hike at the meeting, analysts were surprised the FOMC statement provided no signal on when, and how, the Fed will begin to taper its asset purchases. Many analysts believe the move will come at the Fed’s September 17 to 18 meeting, but some say that it will be delayed because of patchy growth.
“September tapering still a good bet, but the incoming data still matter,” said Ian Shepherdson of Pantheon Macroeconomics. Earlier in the day, the government reported that the US economy grew at a lackluster 1.7 percent annualized pace in the second quarter, after a 1.1-percent growth in the first quarter.
Pointing to growth “at a modest pace during the first half of the year,” the FOMC said that it would keep buying mortgage-backed securities at a monthly pace of $40 billion and longer-term Treasury securities at $45 billion.
Reinvesting the mortgage-backed securities and rolling over maturing Treasury securities, the panel reiterated, “should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
The Fed policymakers appeared a little less optimistic about the economy than they were at their June 18 to 19 meeting.
In their prior statement, the economy was described as expanding at “a moderate pace,” stronger language than “modest.”
Though the FOMC largely repeated the previous statement, mentioning an improving jobs market and housing sector, this time Fed officials noted “mortgage rates have risen somewhat.”