The Two-Way
1:23 pm
Wed July 31, 2013

Federal Reserve Will Continue Bond Buying Program

After a meeting of the Federal Open Market Committee, the Federal Reserve said it will continue to buy $85 billion in bonds every month and will leave the federal funds rate at the historic rate of near zero.

Of course, when the Fed releases its statement, the markets and the media read the tea leaves. Basically nothing much changed from the Fed's previous statement, except one word: The Fed said the country's economic activity "expanded at a modest pace." Previously, they had said the economy was growing at a "moderate" pace.

The AP says this means the Fed has downgraded the U.S. economy from its June assessment.

The wire service adds:

"Stronger job growth has fueled speculation that the Fed could start reducing its purchases as soon as September. But economic growth remains sluggish and unemployment high at 7.6 percent.

"Financial markets had a muted reaction to the Fed's policy statement. The Dow Jones industrial average was up 30 points shortly after the statement was released; it was up 13 points moments before. The yield on the benchmark 10-year Treasury note was 2.64 percent, down slightly from 2.66 percent before the announcement."

One analyst told CNBC the important part of this statement is that nothing in it signals the Fed intends to taper their economic stimulus programs.

CNBC reports that back in May, the Fed scared the markets when it suggested its bond-purchasing program could end in 2014.

"Markets took the statement to mean that the Fed also would begin to raise interest rates sooner than expected," CNBC reports. "A cadre of Fed officials followed that meeting with public statements aimed at quelling fears that money tightening was coming, and the massive stock market rally of 2013 resumed."

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