Fed Stimulus Set to Continue

Citing weak economic growth and a slowdown in housing, the Federal Reserve agreed this week to maintain the pace of its stimulus program. The Fed will continue buying $85 billion a month in treasury bonds and mortgage-backed securities through November.

Many economists expected the Fed to begin reducing its purchases, or “tapering,” back in September, but the Fed decided it wanted to see further signs of economic improvement before winding down the program. That view appears not to have changed. 

In a statement released late Wednesday, the Fed said it “decided to await more evidence that (economic) progress will be sustained before adjusting the pace of its purchases.”

If anything, the condition of the economy has become more precarious since the Fed’s last meeting. The budget debate in Washington likely shaved nearly half a point off GDP and probably reduced hiring in October.

Economic uncertainty means the Fed will continue going full-speed ahead with stimulus, according to Mark Zandi, chief economist for Moody’s Analytics.

“I don’t think Federal Reserve Board members would feel very comfortable about beginning the tapering process until we’re closer to 200,000 jobs added each month. We’re a long way from there – in fact we’re moving in the wrong direction,” he said.

Continued Fed stimulus should bode well for housing. Bond purchases made by the Fed have the effect of reducing mortgage rates, making homes more affordable for homebuyers.