You choose, we deliver
If you are interested in this story, you might be interested in others from The Journal Gazette. Go to www.journalgazette.net/newsletter and pick the subjects you care most about. We'll deliver your customized daily news report at 3 a.m. Fort Wayne time, right to your email.

Economy

Advertisement
Quick take
Reuters, a news service, outlines how the bond buying works:
A central bank buys large amounts of assets – in this case, bonds backed by housing mortgages – in an effort to bring down interest rates and boost the economy.
To buy bonds, the Fed essentially creates money from nothing, paying for its purchases by crediting the accounts of banks from which it buys the bonds. As money piles up in their Fed accounts, banks may be keener to lend to companies and people. If companies use that money to buy equipment, and households use it to buy homes and cars, the economy gets a jump.
Associated Press
A specialist works at the New York Stock Exchange on Tuesday. Investors drove the Dow Jones industrial average to a closing record of 15,680.35 on expectations that the Federal Reserve will maintain its economic stimulus program.

Fed expected to hold steady

Likely to keep bond buying at current level

– 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 recent 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.

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 as it meets this week. 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.

Advertisement