Fed Delays Pullback In Bond Buys, Awaits More Data
There are signs that higher mortgage rates have made it harder for people to afford homes at a time when the rebound in the housing market has been a key pillar for the economy.
The Fed lowered its economic growth forecasts slightly for this year and next year. It predicts that the economy will grow just 2 percent to 2.3 percent this year, down from its forecast in June of 2.3 percent to 2.6 percent.
Next year's economic growth will be a barely healthy 3 percent, the Fed predicts.
The Fed's policymakers expect the unemployment rate to fall to between 7.1 percent and 7.3 percent by the end of 2013, slightly below its June forecast of 7.2 percent to 7.3 percent. It predicts that unemployment will fall as low as 6.4 percent next year, down from 6.5 percent in its June forecast.In its statement, the Fed noted that rising mortgage rates and government spending cuts are restraining growth. It repeated a plan to keep key short-term rates near zero at least until unemployment falls to 6.5 percent from the current 7.3 percent. The Fed's short-term rate indirectly affects many consumer and business loans. "We're in a slow-growth economy with high unemployment and low inflation," said Greg McBride, senior financial analyst at Bankrate.com. "There's no specific catalyst for the Fed to remove stimulus." David Robin, an interest rate strategist at Newedge LLC, said Fed policymakers were surprised by how fast rates rose after they raised the possibility of scaling back the bond purchases. They likely worried that rates would rise even more, and jeopardize the economy, if they reduced the bond-buying. Bernanke said the Fed is concerned that looming fights between Congress and the White House over the budget and taxes could slow the economy. Unless Congress can agree to fund the government past Oct. 1, a government shutdown will occur.
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