Surprise from Fed: No pullback in bond purchases
The decision to maintain its stimulus follows reports of sluggish economic growth. Employers slowed hiring this summer, and consumers spent more cautiously.
Super-low rates are credited with helping fuel a housing comeback, support economic growth, drive stocks to record highs and restore the wealth of many Americans. But the average rate on the 30-year mortgage has jumped more than a full percentage point since May and was 4.57 percent last week — just below the two-year high.
Investors had bid up those loan rates on expectations that the Fed would reduce its stimulus as early as this month.
John Canally, investment strategist at LPL Financial, suggested that financial markets had overreacted in anticipation of reduced bond purchases.
Higher rates "started to impact the real economy, and (the Fed) got a little bit concerned."
Economists suggested that the Fed will still eventually scale back its bond buying, perhaps before year’s end.
"Tapering will come sooner rather than later, assuming that the economy cooperates," Sung Won Sohn, an economist at California State University Channel Islands, wrote in a research report. "The economy is steady, though not strong, and is moving in the right direction
The unemployment rate is now 7.3 percent, the lowest since 2008. Yet the rate has dropped in large part because many people have stopped looking for work and are no longer counted as unemployed — not because hiring has accelerated. Inflation is running below the Fed’s 2 percent target.
The Fed meeting took place at a time of uncertainty about who will succeed Bernanke when his term ends in January. On Sunday, Lawrence Summers, who was considered the leading candidate, withdrew from consideration.
Summers’ withdrawal followed growing resistance from critics. His exit has opened the door for his chief rival, Janet Yellen, the Fed’s vice chair. If chosen by President Barack Obama and confirmed by the Senate, Yellen would become the first woman to lead the Fed.
AP Economics Writers Paul Wiseman and Christopher S. Rugaber contributed to this report.