FOMC: Policy unchanged for now
Sept. 19, 2013 – The Federal Open Market Committee announced yesterday that it was making no change in a key interest rate or in its pace of asset purchases, developments that NAFCU Director of Research and Chief Economist David Carrier described as not surprising given ongoing weakness in the economy.
“The Federal Reserve is holding steady because it believes the economy has not strengthened enough,” Carrier said. “The Fed is also worried about the impacts of the fiscal sequester, the upcoming debt ceiling debate and economic headwinds coming from China and Europe.”
In Wednesday’s policy announcement, the FOMC said it is leaving the federal funds rate target at 0 to 0.25 percent for now and is holding to its program of asset purchases, which are being made at a pace of $85 billion a month.
Reports had speculated that the Fed could begin a slow tapering off of its asset purchases at a pace of $10 billion a month – just enough to ease without causing a spike in market rates. Carrier noted, however, there would still be some risk of a market reaction to any amount of tapering, even if undertaken very slowly.
A NAFCU Macro Data Flash report, released shortly after yesterday’s announcement, notes the FOMC said the federal funds rate range is appropriate as long as unemployment is above 6.5 percent, near-term inflation is projected to be no more than 2.5 percent and long-term inflation expectations continue to be well anchored.
The FOMC also noted that “household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen further and fiscal policy is restraining economic growth.”
FOMC policy statement
NAFCU Macro Data Flash report