News Column

Fed Policy Driven by Continuity, Not Markets

September 24, 2013

Isaac Cohen --

federal reserve
Federal Reserve building (file photo)

To the positive surprise of many, the Federal Reserve announced last week the continuation of the support for the still modest U.S. economic recovery.

The U.S. central bank decided to keep interest rates low and continue purchasing government bonds and mortgage-backed securities.

Since May, central bankers have said gradual reduction of bond purchases could start by the end of this year. For this reason, the decision to maintain the accommodative policy was surprising and generated a sigh of relief in world markets.

Stocks climbed, bond prices gained, the dollar plunged and currencies from emerging markets ceased falling.

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The statement issued after the meeting said the central bank decided "to await more evidence that progress will be sustained" before changing course.

Federal Reserve Chairman Ben Bernanke, during the press conference held at the conclusion of the meeting, recognized they had been "overoptimistic" about economic performance.

Recent tightening of financial conditions, in the form of higher long term interest rates, together with fiscal restraint emanating from Congress and low inflation, were highlighted as the downside risks to the economic outlook.

Mr. Bernanke said "market expectations" did not dictate policy decisions.

He specified that a policy change requires evidence on less restraining fiscal policy, inflation closer to the 2 percent target and more job creation, instead of less unemployment caused by fewer people looking for jobs.


Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Español TV and radio, and a former director, UNECLAC Washington Office.

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