WASHINGTON, September 18, 2013 — The Federal Reserve surprised the financial punditocracy by deciding against reducing its stimulus for the U.S. economy, stating it will maintain the pace of its bond purchases because it thinks the economy still needs the support.
In reaction, markets are soaring this afternoon, with the Dow up 140, the S&P 500 up nearly 20, and the NASDAQ up nearly 34 points at 2:50 p.m. EDT.
The Fed says it decided to hold off on slowing the $85 billion a month in bond purchases to see more conclusive evidence that the recovery will be sustained. The economy, despite rosy Administration pronouncements, has witnessed a summer slide even as stocks have advanced.
In a statement after its meeting, the Fed says that the economy is growing moderately and that some indicators of labor market conditions have shown improvement. But it noted that rising mortgage rates and government spending cuts are restraining growth. The former, in particular, are of great concern to the Fed as housing remains a major driver in the U.S. economy even after the recent real estate crash.
The Fed’s continuing bond purchases are intended to keep long-term loan rates low to spur borrowing and spending.
Many thought the Fed would scale back its purchases, despite mixed economic reports.
With the fiscally dovish Janet Yellen now the top candidate to replace Ben Bernanke as Fed Chair at the end of January 2014 due to Larry Summers’ surprise withdrawal from consideration for the post, the Fed may be adjusting its viewpoint to some extent with that in mind.
—AP contributed to this report