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The US Federal Reserve decides not to taper stimulus The US Federal Reserve decides not to taper stimulus
(34 minutes later)
The US Federal Reserve has decided to maintain its economic stimulus scheme at the current level, despite speculation that it would start scaling it back.The US Federal Reserve has decided to maintain its economic stimulus scheme at the current level, despite speculation that it would start scaling it back.
The Fed has been buying $85bn worth of debt every month, to keep interest rates low. US shares jumped after the announcement with the Dow Jones & S&P 500 hitting record highs.
US shares jumped after the announcement with the S&P 500 hitting a record high. It had been widely expected that the Fed would cut back - or taper - its $85bn a month bond purchase programme.
Most economists were expecting the Fed to cut back - or taper - the bond purchases. The US central bank has been buying bonds to keep interest rates low.
In a statement the Fed said the unemployment rate "remains elevated". In a statement, the Fed said the unemployment rate "remains elevated".
It also highlighted that mortgage rates have risen recently. "The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," it said.
In its statement the Fed said: "The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases." The Fed also highlighted that mortgage rates have risen recently.
Uncertainty over the strength of the economic recovery was underlined by the Fed's latest economic growth forecasts.
It cut its forecast for growth this year to between 2.0% and 2.3%. That compares to a June estimate of between 2.3% and 2.6%.
In a press conference following the release of the statement, chairman Ben Bernanke highlighted the low labour force participation rate, drags on economic growth due to congressional wrangling, and "the tightening of financial conditions observed in recent months" as reasons the Fed had decided to hold off scaling back its bond purchasing.
He emphasized "asset purchases are not on a preset course" and that the central bank would continue to prop up the US economy for as long as it felt extra stimulus was needed.
Not there yet
The news of the delay in cutting back on the economic stimulus took many by surprise.
The dollar fell, and gold prices rose on the news.
Markets cheered the extension of cheap money, rising to record highs, with all US indices up on the news.
"The Fed is no rush to taper nor slow the economy," said Ward McCarthy, chief US economist at Jefferies.
"The bottom line is that the economy continues to move toward a condition that will eventually allow the Fed to gradually reduce the size of [bond] purchases.
However, the economy has not yet reached that point."