Fed maintains strong stimulus as U.S. growth stumbles

Wed Oct 30, 2013 5:16pm EDT
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By Pedro da Costa and Alister Bull

WASHINGTON (Reuters) - The Federal Reserve extended its support for a soft U.S. economy on Wednesday, sounding a bit less optimistic about growth as it announced plans to keep buying $85 billion in bonds per month.

In announcing the decision, the Fed nodded to weaker economic signals that have been due in part to a fiscal fight in Washington that shuttered much of the government for 16 days earlier this month.

The central bank noted that the recovery in the housing market had lost some steam and suggested some frustration at how slowly the labor market was healing.

However, it also dropped a phrase expressing concern about a run-up in borrowing costs, suggesting greater comfort with the current level of interest rates.

"Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months," the policy-setting Federal Open Market Committee said. "Fiscal policy is restraining economic growth."

The decision on bond buying was widely expected and the Fed's statement differed only slightly from the economic assessment it delivered after its last meeting in September.

U.S. stocks sold off slightly, while the dollar climbed against the euro and the yen. Prices of U.S. Treasuries turned negative, pushing yields higher.

"On balance, the Fed's statement was slightly less dovish than expected," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange. He cited the central bank's abandonment of a phrase that expressed concern about an earlier tightening in financial conditions, including higher mortgage rates, which other economists also saw as fractionally hawkish.   Continued...

The facade of the U.S. Federal Reserve building is reflected on wet marble during the early morning hours in Washington, July 31, 2013. REUTERS/Jonathan Ernst