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Dimmer view of economy makes Fed pullback unlikely

October 30, 2013
By MARTIN CRUTSINGER , THE ASSOCIATED PRESS

WASHINGTON - A lot can change in six weeks.

When the Federal Reserve last met in mid-September, almost everyone expected it to start reducing the stimulus it's given the U.S. economy to help it rebound from the Great Recession.

It didn't. The Fed pulled a surprise by deciding not to slow its $85 billion-a-month in Treasury and mortgage bond purchases. Its bond buying has been intended to keep long-term loan rates low to support the economy.

Article Photos

AP PHOTO
This March 27, 2009 file photo, shows the Federal Reserve Building on Constitution Avenue in Washington. After a 16-day partial government shutdown and a batch of tepid economic data, no one thinks the Fed is ready to reduce its stimulus when it meets Tuesday and Wednesday. Many analysts now predict it will maintain the pace of the bond purchases into next year.

And now? After a 16-day partial government shutdown and a batch of tepid economic data, no one thinks the Fed will reduce its stimulus when it meets Tuesday and Wednesday. Many analysts now predict the Fed will maintain the pace of its bond purchases into next year.

Blame the uncertainty surrounding Congress' budget fight and renewed questions about the economy's health.

"I think March is now the earliest that any reduction in bond purchases will happen," said Diane Swonk, chief economist at Mesirow Financial.

By then, Fed members expect to have seen several months of stronger job growth. They also expect Congress to have resolved its budget impasse.

If the Fed does start slowing its stimulus in March, it will have left its policy unchanged not just this week but also at its next meeting in December and at its subsequent meeting in late January. The delay would signal a dimmer economic outlook.

The January meeting will be the last for Chairman Ben Bernanke, who is stepping down after eight years. President Barack Obama has chosen Vice Chair Janet Yellen to succeed Bernanke.

Assuming that Yellen is confirmed by the Senate, her first meeting as chairman will be in March. Many economists think no major policy changes will occur before a new chairman takes over.

Congress' budget fight has clouded the Fed's timetable. Though the government reopened Oct. 17 and a threatened default on its debt was averted, Congress adopted only temporary fixes. More deadlines and possible economic disruptions lie ahead.

A House-Senate conference committee is working toward a budget accord. But wide differences separate Democrats and Republicans on spending and taxes. Without a deal by Jan. 15, another shutdown is possible. Congress must also raise the government's debt ceiling after Feb. 7. If not, a market-rattling default will remain a threat.

The standoff has led economists to trim their forecasts for economic growth in the October-December quarter. U.S. employers added just 148,000 jobs in September, a steep slowdown from August. And temporary layoffs during the shutdown are expected to depress October's job gain.

The shutdown also postponed the release of many of the government's economic reports. The delay has made it harder for Fed officials to assess the economy.

 
 

 

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