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Fed maintains bond-buying stimulus to keep interest rates low

WASHINGTON — The Federal Reserve says the U.S. economy still needs support from its low interest rate policies because it is growing only moderately.

In a statement Wednesday after a policy meeting, the Fed said it would keep buying $85 billion a month in bonds to keep long-term interest rates low and encourage borrowing and spending.

Yet the Fed seemed to signal that it thinks the economy is improving despite some recent weak data and uncertainties caused by the partial government shutdown. The Fed no longer expresses concern, as it did in September, that higher mortgage rates could hold back hiring and economic growth.

Some analysts said this suggests that the Fed might be prepared to slow its bond purchases by early next year — sooner than some have assumed.

"The tone was probably more positive on the outlook than most people expected," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

Some economists noted that Congress' budget fight has clouded the Fed's timetable for tapering its bond purchases. Though the government reopened Oct. 17 after a partial shutdown and a threatened default on its debt was averted, Congress passed only temporary fixes. More deadlines and possible disruptions lie ahead.

Without a budget 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.

If the government manages to avert another shutdown in mid January, Dana Saporta, an economist at Credit Suisse, said, "We could see a taper as soon as the Jan. 29 meeting."

But she added that a continued budget impasse would likely delay any pullback in the Fed's bond purchases until March or later.

The Fed noted again in its statement that budget policies in Washington have restrained economic growth.

Fed maintains bond-buying stimulus to keep interest rates low 10/30/13 [Last modified: Wednesday, October 30, 2013 8:31pm]
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