There’s still no end in sight for the Federal Reserve’s stimulus program — known as quantitative easing — after the central bank met this week and decided to continue buying $85 billion in bonds each month.
In a statement released after the conclusion of its policy meeting, the Fed pointed to fiscal policy (a.k.a. government spending cuts, the shutdown and debt ceiling debate) as “restraining economic growth.”
While the Fed continued to characterize the overall economy as expanding at a “moderate pace” — the same as at its prior meeting — it did downgrade its assessment of the housing market slightly.
“The housing sector slowed somewhat in recent months,” the statement said.
The central bank has been buying $85 billion in bonds every month since September 2012, and has said it will continue to do so until the job market improves “substantially.” The program is now nearing $1 trillion in total, yet that goal remains elusive.
Sure, the unemployment rate, at 7.2% is slightly lower than it was, but so too is the country’s labor participation rate. Only 63% of Americans ages 16 and over either have a job or are looking for one — the lowest level since 1978.
Meanwhile, hiring is stuck in slow motion, averaging 185,000 news jobs added in each of the last 12 months. Overall, not much has changed in the job market since last year.
What about ‘tapering’?
Investors had previously thought the Fed would begin slowing its stimulus plan by now, in a gradual wind-down process dubbed “tapering.” Fed Chairman Ben Bernanke said as much back in June, when he remarked “We anticipated that it would be appropriate to begin to moderate the monthly pace of purchases later this year.”
But Bernanke has also said the Fed’s decision will depend on the economic data.
That’s been a problem since the October government shutdown delayed some economic reports and is expected to muddle some of the data in the coming months, and the debt ceiling standoff could still resurface early next year, weighing on the economy once again.
Add in the Fed’s leadership transition, as Bernanke’s term ends in January, and Fed watchers largely think the central bank has to wait until at least its March 2014 meeting, before making any major policy changes.
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