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Wednesday, September 18, 2013

Fed Keeps Stimulus In Place, Surprising Wall Street

U.S. Federal Reserve Chairman Ben Bernanke (pictured here at a recent IMF/World bank meeting) will testify before Congress today on the state of the U.S. economy. (AP)

U.S. Federal Reserve Chairman Ben Bernanke (pictured here at a recent IMF/World bank meeting) will testify before Congress today on the state of the U.S. economy. (AP)

Update 2:17 p.m. via AP: The Federal Reserve has decided against reducing its stimulus for the U.S. economy, saying it will continue to buy $85 billion a month in bonds because it thinks the economy still needs the support.

The Fed said in a statement Wednesday that it held off on tapering because it wants to see more conclusive evidence that the recovery will be sustained.

Stocks spiked after the Fed released the statement at the end of its two-day policy meeting.

In the statement, the Fed says that the economy is growing moderately and that some indicators of labor market conditions have shown improvement. But it noted that rising mortgage rates and government spending cuts are restraining growth.

The bond purchases are intended to keep long-term loan rates low to spur borrowing and spending.

The Fed also repeated that it plans to keep its key short-term interest rate near zero at least until unemployment falls to 6.5 percent, down from 7.3 percent last month. In the Fed’s most recent forecast, unemployment could reach that level as soon as late 2014.

Many thought the Fed would scale back its purchases. But interest rates have jumped since May, when Fed Chairman Ben Bernanke first said the Fed might slow its bond buys later this year. But Bernanke cautioned that the reduction would hinge on the economy showing continued improvement.

Update 2:04 p.m. via AP: Stocks have risen sharply after the Fed announced it would keep the stimulus in place. The S&P 500 broke through a record.

12 p.m.: Wall Street has been in a holding pattern today, as investors wait to hear from the Federal Reserve about the future of the bank’s bond-buying programs.

That would be QE4 — the “QE” stands for quantitative easing — the latest version of the Fed’s long term economic stimulus program.

The Fed has been spending over $85 billion a month to buy mortgage-backed securities and longer term Treasury bonds to keep borrowing rates low.

Earlier this year, the bank said it would start tapering that program as the economy recovers. Investors are expecting word on the timing this afternoon, when the Fed concludes its two-day meeting and issues a policy statement.

Here & Now speaks with Marilyn Cohen, founder of Envision Capital Management, and NPR business reporter Jim Zarroli, about what the policy change might mean.

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Robin Young and Jeremy Hobson host Here & Now, a live two-hour production of NPR and WBUR Boston.

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