Fed plays 'wait and see' on rollback of stimulus

No change, yet: that was the message from the US Federal Reserve on its stimulus policies yesterday as the central bank reiterated its warning that political wrangling over fiscal issues in Washington was "restraining economic growth".

The Fed said that, since the last meeting of its policy-setting Open Market Committee (FOMC) in September, activity in the world's largest economy had "continued to expand at a moderated pace". But, while the labour market has continued to show signs of "further improvement," unemployment remains high and "the recovery in the housing sector slowed somewhat in recent months".

As a result, the central bank, which has been mulling when and how to start down the road of rolling back the extraordinary stimulus measures put in place to aid the US during the financial crisis and subsequent recession, signalled it was going to remain in wait-and-see mode. For now, therefore, it will keep on buying government- and mortgage-related bonds to the tune of $85bn (£53bn) a month.

"Taking into account the extent of federal fiscal retrenchment over the past year, the [FOMC] sees the improvement in economic activity and labour market conditions since it began its asset purchase programme as consistent with growing underlying strength in the broader economy," the bank said. "However, the [FOMC] decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."

Many on Wall Street had expected the central bank to signal a reduction in the bond-buying programme last month. That followed various signals from the Fed, including a rough timeline from the chairman Ben Bernanke, who said the central bank would look to begin reducing the size of its bond buys before the year end.

But with various clouds still lingering on the economic horizon, not least the still-weak state of the labour market, the Fed decided to hold steady in September. Since then, analyst expectations have shifted owing to the government shutdown and drawn-out negotiations over the debt ceiling.

The impasse in Washington, while it has been resolved for the time being, is likely to have hit growth in the final quarter, further complicating the near-term economic outlook.