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Federal Reserve maintains pace of record stimulus as FOMC meetings draw to a close

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Federal Reserve maintains pace of record stimulus as FOMC meetings draw to a close

The Federal Open Market Committee wrapped up its second to last policy meetings this year, as policymakers opted to maintain the current pace of monetary easing. Fed officials were reluctant to reign in record stimulus amid sluggish job growth and weaker home sales, which thwarted the central bank’s plan to begin scaling back asset purchases.

“The Committee decided to await more evidence that progress will be sustained,” the Fed said in an official press release. The Committee’s dual mandate consists of employment growth and price stability, which it hopes to foster through monthly asset purchases. Since last September the Federal Reserve has been injecting $85 billion into the economy in an effort to lower long-term interest rates and encourage spending. The Fed balance sheet has swelled to more than $3.6 trillion since quantitative easing began in 2009.

The FOMC said economic activity “continued to expand at a moderate pace” in October, despite the 16-day government shutdown. A slowdown in the housing sector was among the biggest concerns, as higher mortgage rates and declining consumer confidence kept would-be buyers out of the market.

Market participants had eagerly awaited the September FOMC meetings, as it was believed the Fed would finally begin scaling back the pace of asset purchases. The central bank’s decision to maintain the status quo surprised the markets, but in hindsight was the right move given the Fed’s mandate. The October decision, by contrast, surprised no-one, as the weight of the budget impasse removed any impetus for a shift in monetary policy at this time. The Federal Reserve will maintain the pace of asset purchases until March 2014, according to Bloomberg’s recent survey of economists.

The Fed’s decision was further legitimated after the ADP Institute announced job creation slowed its lowest level since April. US employers added 130,000 payrolls in October, shifting the three-month average to 152,000. The Labor Department will release official nonfarm payrolls next week.

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