Bernanke Keeps the Easy Money Coming

Fed chairman shocks experts with decision to leave economic-stimulus programs untouched.

Chairman of the Federal Reserve Ben Bernanke testifies before the House Financial Services Committee on Capitol Hill in Washington, Wednesday, July 17, 2013. 
National Journal
Patrick Reis
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Patrick Reis
Sept. 18, 2013, 10:41 a.m.

The Fed­er­al Re­serve is still go­ing all-in on its ef­forts to stim­u­late the U.S. eco­nomy, Chair­man Ben Bernanke an­nounced Wed­nes­day, sur­pris­ing ex­perts who had pre­dicted the Fed would taper its stim­u­lus ef­forts.

In­stead, the Fed will con­tin­ue its $85-bil­lion monthly bond buys — a mon­et­ary-policy tech­nique known as “quant­it­at­ive eas­ing” — that are in­ten­ded to lower in­terest rates, sup­port the hous­ing mar­ket, and stim­u­late eco­nom­ic growth.

The Fed’s mon­et­ary-policy com­mit­tee has been say­ing for months it will be­gin scal­ing back the bond buys when it is con­fid­ent in the strength of the U.S. eco­nomy, and many pre­dicted that the pan­el would make that de­cision fol­low­ing the two-day meet­ing that ended Wed­nes­day.

But in a state­ment fol­low­ing the meet­ing, the com­mit­tee said it pre­ferred to take a wait-and-see ap­proach with eco­nom­ic growth.

“The Com­mit­tee sees the im­prove­ment in eco­nom­ic activ­ity and labor mar­ket con­di­tions since it began its as­set pur­chase pro­gram a year ago as con­sist­ent with grow­ing un­der­ly­ing strength in the broad­er eco­nomy,” the com­mit­tee said in a state­ment fol­low­ing the meet­ing. “However, the Com­mit­tee de­cided to await more evid­ence that pro­gress will be sus­tained be­fore ad­just­ing the pace of its pur­chases.”

The Fed will also con­tin­ue the oth­er pil­lar of its stim­u­lus plan: keep­ing the fed­er­al funds rate low for banks, an­oth­er policy aimed at keep­ing money cir­cu­lat­ing throughout the eco­nomy.

Since the fin­an­cial crisis, Bernanke’s Fed has gone to great lengths to at­tempt to stim­u­late the eco­nomy, and the chair­man has faced great cri­ti­cism for it. Con­gres­sion­al Re­pub­lic­ans have pil­lor­ied Bernanke — who was first ap­poin­ted by former Pres­id­ent George W. Bush — over the stim­u­lus ef­forts, say­ing they have left the eco­nomy at risk for fu­ture in­fla­tion.

Thus far, in­fla­tion re­mains well be­low the bank’s tar­get rate of 2 per­cent, and the com­mit­tee Wed­nes­day said it did not ex­pect in­fla­tion to rise sharply in the fu­ture. Ac­cord­ing to a set of eco­nom­ic fore­casts re­leased along­side the policy state­ment, the Fed ex­pects in­fla­tion to re­main be­low 2 per­cent through 2016, and re­main at between 1.1 per­cent and 1.2 per­cent for the rest of 2013.

The cent­ral bank did, however, pre­dict up­com­ing de­creases in the un­em­ploy­ment rate. The un­em­ploy­ment rate sat at 7.3 per­cent in Au­gust, but the Fed pro­jec­ted Wed­nes­day that it would fall to between 6.4 per­cent and 6.8 per­cent in 2014, and to as low as 5.9 per­cent in 2015.

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