WASHINGTON -- The Federal Reserve has decided to press on with $85 billion in monthly bond purchases, saying it needs to see more evidence that the economy will continue to improve.
"The recovery in the housing sector slowed somewhat in recent months," the Federal Open Market Committee said Wednesday at the end of a two-day meeting in Washington. "Fiscal policy is restraining economic growth."
Ben Bernanke is pushing unprecedented accommodation into the final months of his Fed chairmanship as he seeks to shield the four-year economic expansion from the impact of higher borrowing costs and this month's partial U.S. government shutdown. The 16-day closing resulted in the furloughs of as many as 800,000 federal workers and delayed release of data the Fed says it needs to evaluate the economy.
"Taking into account the extent of federal fiscal retrenchment over the past year, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy," the committee said. The Fed repeated that it will "await more evidence that progress will be sustained before adjusting the pace of its purchases."
The Fed's purchases will remain divided between $40 billion a month of mortgage bonds and $45 billion in Treasury securities.
"Wait-and-see seems to be the prescription for the day," said Scott Anderson, chief economist at Bank of the West in San Francisco. "They're on hold given that
the data haven't moved in their direction," said Anderson, who predicts the Fed won't make its first cut to bond buying until March.
The central bank left unchanged its statement that it will probably hold its target interest rate near zero "at least as long as" unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.
The Fed repeated that inflation "has been running below the committee's longer-run objective but longer term inflation expectations have remained stable."
Price gains have lagged below the committee's 2 percent long-run target. The cost of living rose as projected in September as fuel charges climbed, capping the smallest year-to- year gain in five months.
The consumer price index increased 0.2 percent after rising 0.1 percent the prior month, a Labor Department report showed today. The Fed's preferred gauge of inflation, the personal consumption expenditures index, rose 1.2 percent in August and hasn't breached 2 percent since March 2012.
The Fed removed a sentence from the previous statement that had said tighter financial conditions could slow the improvement in the economy.
Kansas City Fed President Esther George dissented for the seventh meeting in a row, citing the risk the Fed's stimulus could create financial imbalances and cause long-term inflation expectations to rise.
Economists forecast no change to the Fed's bond buying today. The FOMC won't reduce the pace of purchases until its March 18-19 meeting, according to the median estimate of an Oct. 17-18 Bloomberg News survey.
President Barack Obama has nominated Vice Chairman Janet Yellen to succeed Bernanke, whose term expires on Jan. 31. If confirmed by the Senate, Yellen would take on the challenge of dialing down so-called quantitative easing and withdrawing stimulus while maintaining growth.
Central bankers are waiting to see how the economy weathered the budget impasse and debt-limit debate earlier this month. The shutdown reduced growth by 0.3 percentage point this quarter, according to the median estimate in an Oct. 17-18 Bloomberg survey, as businesses from Capitol Hill eateries to Florida Everglades charter boats lost customers while workers were furloughed and national parks were closed.