Published 12:33 pm, Wednesday, October 29, 2014
WASHINGTON - The Federal Reserve plans to keep a key interest rate at a record low to support a job market that's improving but still isn't fully healthy and help lift inflation from unusually low levels. As expected, it's also ending a bond purchase program that was intended to keep long-term rates low.
The Fed reiterated Wednesday its plan to maintain its benchmark short-term rate near zero 'for a considerable time.' Most economists predict that the Fed won't raise that rate before mid-2015. The Fed's benchmark rate affects the rates on many consumer and business loans.
After its two-day policy meeting, the Fed suggested that the job market, though still not back to normal, is strengthening.
The U.S. economy has benefited from solid consumer and business spending, manufacturing growth and increased hiring that's reduced the unemployment rate to a six-year low of 5.9 percent. But the housing industry continues to struggle, and global weakness poses a potential threat to U.S. growth.
Fed Chairwoman Janet Yellen has stressed that while the unemployment rate is close to a historically normal level, other gauges of the job market remain a concern. These include stagnant pay, many part-time workers who can't find full-time jobs, and a historically high number of people who have given up looking for a job and are no longer counted as unemployed.
What's more, inflation remains so low it isn't even reaching the Fed's long-term target rate of 2 percent. When inflation is excessively low, people sometimes delay purchases - a trend that slows consumer spending, the economy's main fuel. The low short-term rates the Fed has engineered are intended, in part, to lift inflation.
Investors are expected to remain on high alert for the first hint that rates are set to move higher. Most economists have said they think the Fed will start raising rates by mid-2015. But global economic weakness, market turmoil and falling inflation forecasts have led some to suggest that the Fed might now wait longer.
The Fed's decision to end its third round of bond buying had been expected. It has gradually pared the purchases from $85 billion in Treasury and mortgage bonds each month to $15 billion.
Even with the end of new purchases, the Fed's investment holdings stand at $4.5 trillion - more than $3 trillion higher than when the bond purchases were launched in 2008 at the height of the financial crisis. The Fed has said it won't begin selling its holdings until after it starts raising short-term rates.
Most economists have predicted that the Fed's first rate increase won't occur until next summer. Some foresee no increase until fall, in part because the global economy is weakening.
Posted by Unknown on Wednesday, October 29, 2014 - Rating: 4.5
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