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The US Federal Reserve decides not to taper stimulus The US Federal Reserve decides not to taper stimulus
(35 minutes later)
The US Federal Reserve has decided to maintain its economic stimulus scheme at the current level, despite speculation that it would start scaling it back.The US Federal Reserve has decided to maintain its economic stimulus scheme at the current level, despite speculation that it would start scaling it back.
US shares jumped after the announcement with the Dow Jones & S&P 500 hitting record highs.US shares jumped after the announcement with the Dow Jones & S&P 500 hitting record highs.
It had been widely expected that the Fed would cut back - or taper - its $85bn a month bond purchase programme.It had been widely expected that the Fed would cut back - or taper - its $85bn a month bond purchase programme.
The US central bank has been buying bonds to keep interest rates low.The US central bank has been buying bonds to keep interest rates low.
In a statement, the Fed said the unemployment rate "remains elevated".In a statement, the Fed said the unemployment rate "remains elevated".
"The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," it said."The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," it said.
The Fed also highlighted that mortgage rates have risen recently.The Fed also highlighted that mortgage rates have risen recently.
Uncertainty over the strength of the economic recovery was underlined by the Fed's latest economic growth forecasts.Uncertainty over the strength of the economic recovery was underlined by the Fed's latest economic growth forecasts.
It cut its forecast for growth this year to between 2.0% and 2.3%. That compares to a June estimate of between 2.3% and 2.6%.It cut its forecast for growth this year to between 2.0% and 2.3%. That compares to a June estimate of between 2.3% and 2.6%.
In a press conference following the release of the statement, chairman Ben Bernanke highlighted the low labour force participation rate, drags on economic growth due to congressional wrangling, and "the tightening of financial conditions observed in recent months" as reasons the Fed had decided to hold off scaling back its bond purchasing. 'No fixed schedule'
He emphasized "asset purchases are not on a preset course" and that the central bank would continue to prop up the US economy for as long as it felt extra stimulus was needed. In a press conference following the release of the statement, chairman Ben Bernanke highlighted three reasons why the Fed had decided to hold off scaling back its bond purchasing.
Those were: the low labour force participation rate, drags on economic growth due to congressional wrangling over a looming budget deadline, and "the tightening of financial conditions observed in recent months".
He said "asset purchases are not on a preset course" and that the central bank would continue to prop up the US economy for as long as it felt extra stimulus was needed.
"There is no fixed calendar, schedule. I really have to emphasise that," said Mr Bernanke.
He also defended his decision to begin hinting to markets that the central bank was considering a slowdown in its stimulus efforts in June, leading to a build up in speculation over the summer.
"I think there's no alternative in making monetary policy but to communicate as clearly as possible," he said.
In addition, he appeared to row back from comments indicating that if the US unemployment rate dropped below 7%, the Fed would consider that the US economy was on track.
He refused to take questions on what he planned to do once his second term ends in January 2014.
"If you will indulge me just a little longer, I prefer not to talk about my plans at this point," he said.
Not there yetNot there yet
The news of the delay in cutting back on the economic stimulus took many by surprise.The news of the delay in cutting back on the economic stimulus took many by surprise.
The dollar fell, and gold prices rose on the news.The dollar fell, and gold prices rose on the news.
Mortgage rates, which had risen dramatically over the summer, fell, perhaps easing concerns that higher rates were hurting a nascent housing recovery.
Markets cheered the extension of cheap money, rising to record highs, with all US indices up on the news.Markets cheered the extension of cheap money, rising to record highs, with all US indices up on the news.
"The Fed is no rush to taper nor slow the economy," said Ward McCarthy, chief US economist at Jefferies. "The Fed is in no rush to taper or slow the economy," said Ward McCarthy, chief US economist at Jefferies.
"The bottom line is that the economy continues to move toward a condition that will eventually allow the Fed to gradually reduce the size of [bond] purchases."The bottom line is that the economy continues to move toward a condition that will eventually allow the Fed to gradually reduce the size of [bond] purchases.
However, the economy has not yet reached that point."However, the economy has not yet reached that point."