US Fed maintains bond-buying program

Reported by AAP
Thursday, August 1, 2013

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The US Federal Reserve has left unchanged near-zero interest rates and its massive bond-buying program, citing modest growth in the world's largest economy.

Wrapping up a two-day policy meeting, the Federal Open Market Committee (FOMC) said it would continue to buy $US85 billion ($A95.44 billion) in bonds per month to help tamp down longer term interest rates that have been supporting the economy, and especially the housing market recovery.

The bond-purchase program has filled a gap in the Fed's toolkit after the central bank slashed its key federal funds rate to 0-0.25 per cent in December 2008 and held it there.

While no one expected a rate hike at the meeting, analysts were surprised the FOMC statement provided no signal on when, and how, the Fed will begin to taper its asset purchases.

Many analysts believe the move will come at the Fed's September 17-18 meeting, but some say it will be delayed because of patchy growth.

"September tapering still a good bet, but the incoming data still matter," said Ian Shepherdson of Pantheon Macroeconomics.

Earlier in the day the government reported the US economy grew at a lacklustre 1.7 per cent annualised pace in the second quarter after 1.1 per cent growth in the first quarter.

Pointing to growth "at a modest pace during the first half of the year," the FOMC said it would keep buying mortgage-backed securities at a monthly pace of $US40 billion and longer-term Treasury securities at US$45 billion.

Reinvesting the mortgage-backed securities and rolling over maturing Treasury securities, the panel reiterated, "should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

The Fed policymakers appeared a little less optimistic about the economy than they were at their June 18-19 meeting.

In their prior statement, the economy was described as expanding at "a moderate pace," stronger language than "modest."

Though the FOMC largely repeated the previous statement, mentioning an improving jobs market and housing sector, this time Fed officials noted "mortgage rates have risen somewhat."

Interest rates jumped after Fed Chairman Ben Bernanke said in June the central bank could taper bond purchases later this year and end the program by mid-2014 if the economy continued to improve.

The rate increases have raised concerns that higher mortgage rates could snuff out the housing sector recovery.

The new FOMC statement made no mention of a tapering timetable, but it highlighted the officials were watching the impact of weak inflation on the economy.

25/07/2014 10:22Sydney, Australia. 25 July,2014
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