The Federal Reserve announced no change to its program of monthly asset purchases designed to stimulate the economy. The central bank will continue to buy mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. "The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the central bank said in a statement.
• The news sent markets through the ceiling. The Dow Jones Industrial Average, which had been concerned that the central bank would take the economy off life support, hit an all-time high on the announcement.
• However the decision to maintain the stimulus pointed to a diagnosis on the part of the Fed of sustained, underlying economic weakness. In June, Fed chairman Ben Bernanke said the central bank may begin tapering its asset purchases. There was no sign of such talk today, three months later.
• Bernanke said that unemployment was lower but not low enough (the Fed has set a 6.5% benchmark) and growth is up but not far enough. Bernanke said the current unemployment rate of 7.3% "understates the amount of true unemployment in the economy" because of cyclical and demographic trends.
• The news floored analysts and reporters, who reminded Fed chair Ben Bernanke that as recently as June he was talking about "tapering" quantitative easing. "I don't recall stating that we would do any particular thing in this meeting," he replied.
• Bernanke said the economy continued to show signs of recovery, and sectors closest to the QE program – housing and autos – showed some of the best improvement. "There has been a lot of progress," he said. "Labor market indicators are much better today than they were when we began... more than a year ago."
• Bernanke warned of the potential "very serious consequences for financial markets and the economy" if the country defaults on debt or if the federal government has to shut down due to a congressional failure to reach a budget deal.
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