and Pedro da Costa
WASHINGTON -- The Federal Reserve extended its support for a slowing U.S. economy Wednesday, saying it will keep buying $85 billion in bonds per month for the time being.
In announcing the widely expected decision, Fed officials nodded to a weaker growth outlook due in part to a fiscal fight in Washington that shuttered much of the government for 16 days earlier this month.
A rise in borrowing costs following hints from the central bank earlier in the year that it might soon start to ratchet back its monetary stimulus have also weighed on growth.
"Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months," the Fed's policy-setting Federal Open Market Committee said. "Fiscal policy is restraining economic growth."
The labor market has shown "some" further improvement, the Fed said, despite some recent weakening in the figures. It dropped a reference to a "tightening of financial conditions observed in recent months" from its list of risks to the outlook.
Esther George, president of the Kansas City Federal Reserve Bank, dissented against the decision as she has at every FOMC meeting this year, favoring a modest reduction in the pace of bond purchases.
The Fed shocked financial markets in last month by opting not to scale back its bond buying, after allowing a perception to harden over the summer that it was ready to start easing off on stimulus. Its caution has since been vindicated.
Consumer and business confidence has been dented by the bitter political fight that triggered the government shutdown and pushed the nation to the brink of a potentially devastating debt default, and a slew of recent data has pointed to economic weakness.
Reports Wednesday showed U.S. private-sector employers hired the fewest number of workers in six months in October, while inflation stayed under wraps last month.
Other recent data on hiring, factory output and home sales in September had already suggested the economy lost a step even before the government shut down.
The soft tone in the data has led markets to recalibrate forecasts for a tapering in the bond purchases and has pushed rate hike expectations back into mid-2015 at the earliest.
Before the FOMC statement's release, futures markets indicated a 52 percent chance of the first quarter-point rate hike by April 2015; that rose to 96 percent by September 2015. Yields on the 10-year U.S. Treasury note have fallen back to 2.50 percent, compared with almost 3 percent in early September.
In response to the deepest recession and weakest recovery in generations, the U.S. central bank cut interest rates to near zero and more than quadrupled its balance sheet to $3.8 trillion.
The response hasn't been uncontroversial, with some Fed hawks and many Republicans arguing there is a risk of runaway inflation or financial market bubbles.
However, core Fed officials, including Chairman Ben Bernanke and his presumptive successor, Vice Chair Janet Yellen, have argued that the threat of persistently high unemployment is the most pressing issue right now.
Data on Wednesday showed consumer price inflation at just 1.2 percent in the year through September, well below the central bank's 2 percent target.