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Fed keeps easy money flowing for now

2:19 PM, Jul 31, 2013   |    comments
The Marriner S. Eccles Building houses the main offices of the Board of Governors of the Federal Reserve System. I(Photo: Jack Gruber, USA TODAY)
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Noting that the economy has weakened recently, the Federal Reserve agreed Wednesday to continue its extraordinary bond-buying program to hold down borrowing costs for consumers and businesses.

Although many economists expect the stimulus to be scaled back this fall, the Fed's warier economic outlook raises the risk that a reduction in the bond purchases could be delayed.

In a statement after a two-day meeting, the Fed said the economy has expanded "at a modest pace" the first half of the year. In June it said the economy was growing "at a moderate pace." And the Fed noted Wednesday that mortgages rates "have risen somewhat," a development that some economists fear could dampen the housing rebound.

The government said Wednesday that the economy grew a better-than-expected 1.7% in the second quarter but it revised its estimate for first-quarter growth to 1.1% from 1.8%. Meanwhile, fixed 30-year mortgage rates have risen to 4.31% from 3.35% in early May.

The Fed is buying $85 billion a month in Treasury bonds and mortgage-backed securities to contain long-term interest rates and spur more home purchases and other economic activity.

Last month, Fed Chairman Ben Bernanke said the central bank likely would begin paring back the monthly purchases later this year and end them by mid 2014 if the economy and labor market continue to improve.

His remarks initially roiled financial markets, but stocks rebounded and bond yields edged lower in recent weeks after Bernanke said reduced bond purchases don't mean an earlier increase in the Fed's benchmark short-term interest rate. Most Fed policymakers expect that rate to stay near zero until 2015.

Bernanke also has said a pull-back in the bond-buying would be put off if the economy and job market teeter over the next few months amid federal budget cuts and a January increase in payroll taxes.

Despite weak economic growth, payrolls have grown solidly this year and the housing and auto markets have continued a strong recovery. Most economists recently surveyed by USA TODAY expect the Fed to begin to trim the bond purchases in September or October.

USA TODAY

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