Fed stands pat on interest rates

The central bank makes no decisions on trimming its bond-buying and leaves its key rate at ultra-low levels. While the Dow and S&P end flat, July was their 2nd best month of 2013.

By Charley Blaine Jul 31, 2013 2:07PM
Ben Bernanke © Richard Drew/AP PhotoUpdated: 4:51 p.m. ET

The Federal Reserve said Wednesday it expects to continue its $85-billion-a-month bond purchase program for the foreseeable future, delaying at least to September hard decisions on when to start tapering its stimulus efforts back.

Stocks initially rallied on the news, trying to regain highs seen early in the day. The bid ran out of gas, however, and the major indexes ended the day basically flat.

The Fed also will keep interest rates at ultra-low levels as it continues its efforts to boost the national economy. That's due in part because, the Fed suggested, the economy isn't as strong as it had been earlier in the year.

Ultra-low means the target on its federal funds rate remains at 0% to 0.25%. That's been the Fed's target since December 2008. The federal funds rate is what banks charge each other for overnight loans. It's the foundation on which all U.S. interest rates are built.

While the market fell back, July was still the best month since January for the Dow Jones industrials ($INDU) and the Standard & Poor's 500 Index ($INX). The Nasdaq Composite Index ($COMPX) enjoyed its best monthly performance since January 2012.

The Dow closed down 21 points to 15,500. The blue chips had risen 114 points in the morning to a new intraday high of 15,634. The S&P 500 ended down very slightly at 1,686. The Nasdaq added 10 points to 3,626. The index had risen as many as 32 points early in the day.
The Fed's announcement was expected. The central bank, however, has been debating how and when to scale back its bond-buying program, which also has been known as quantitative easing. The Fed is in the midst of its third-round of bond buying, a round that began in September 2012. 

The Fed statement appeared to temper some optimism that had prevailed earlier in the year. It described the economy as advancing at "a modest pace" in the first half of the year. The Wall Street Journal noted the word "modest" hadn't been used in a Fed statement for more than three years.

In the last few statements, the Fed had been saying the economy was growing "moderately."

It also specifically acknowledged that mortgage rates have been rising. Bankrate.com's tracking of mortgage rates nationally shows the rate on a 30-year loan has risen from 3.36% in December to as high as 4.6% earlier in July before falling back to 4.36%.

The statement pointedly said -- as it did in June -- that fiscal policy is "restraining economic growth."

Since the 2008 financial crisis, the Fed has made billions of dollars available to be lent in this country and elsewhere. The goal was first to help stabilize matters after the panic, and then to seed economic growth.

Recently, however, it's been discussing how to taper down the bond-buying program and when it might raise interest rates. The central bank has said it plans to keep short-term rates near zero at least until the jobless rate falls to 6.5%. There's a caveat: Inflation has to remain in check. The jobless rate was 7.6% in June. The Labor Department will issue its July jobs report on Friday.

But Chairman Ben Bernanke (pictured) suggested in June the bond buying might be trimmed starting in the fall and ended some time in 2014. The Fed doesn't expect to raise its fed funds rate until 2015.

Many analysts had been predicting the tapering would begin in September, but the description of "modest" economic growth and concern about higher mortgage rates may be a signal that tapering might not start in September.

When Bernanke started to talk in May and June about winding down the bond-buying, markets panicked. The S&P 500 dropped 5.8% between May 21 and June 24. The index is up 7.2% since.

The yield on the 10-year Treasury note rose from 1.631% to 2.725% between May 2 and July 5 before stabilizing. It climbed to as high as 2.725% early Wednesday but dropped back to 2.593%, down from 2.603% on Tuesday.

The bond yield rose on the better-than-expected report on gross domestic product and the ADP Employment Index, which noted those 200,000 private-sector jobs. Professional and business services added 49,000 jobs. Construction expanded by 22,000, the report said.

The Labor Department's July report is due Friday.

The market's fade seemed to reflect some concern about the health of the economy and some worries about when the Fed will start to taper its bond purchases.

But the market was buffeted by end-of-the-month trading designed to square positions.

Still, it was a very good month for investors. The Dow and S&P 500 set new closing highs during the month and new intraday highs. The Nasdaq's close on Wednesday was its highest since Sept. 29, 2000.

The Dow is up 18.3% for the year. The S&P 500 is up 18.2%, and the Nasdaq is up 20.1%.

Since the March 2009 market bottom, the Dow is up 136.7%. The S&P 500 is up 149.2%, and the Nasdaq is up 185.9%. The Nasdaq-100 Index ($NDX) is up 196%, while the Russell 2000 Index is up 204.5%. The Dow Jones Transportation Average ($DJT) is up 201%.

Light sweet Crude oil (-CL) in New York was up $1.95 to $105.03 a barrel. Brent crude, the benchmark North Sea oil, jumped 90 cents to $107.81 a barrel. Light sweet crude was up 8.8% for the month. Brent was up 6.1% for month.

Gold (-GC) closed down $11 to $1,313 on the day but was up 7.3% for the month. For the year, gold is down 21.7%.

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120Comments
Jul 31, 2013 2:34PM
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How does one seed economic growth by creating money out of thin air and backing it with absolutely nothing.  Without first having productivity, lower taxes, less stringent regulations, less consumption, more savings, more exports, less imports, re institution of sound money and a solid budget plan. No 85 billion a month bond purchasing program on the planet will EVER create any jobs or grow any economy, EVER! Banks don't create prosperity. People do. Without first going back to the very root, basics and the very staples of sound economics which are free markets without central planning and government intervention like America experienced from 1870-1920 This house of cards and charade will collapse in due time. History tells us this. It has nothing tangible or realistic.
Jul 31, 2013 2:50PM
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They can print all they want. It won't be long until the creditors come looking for payback time. That is when the , will really hit the fan. Be afraid, Be very afraid. GOD BLESS AMERICA.  Boy are we gonna need it.
Jul 31, 2013 2:20PM
Jul 31, 2013 2:15PM
Jul 31, 2013 2:37PM
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And the propped up Stock Market continues on...gotta love having that printing press running 24/7, eh?
Jul 31, 2013 2:48PM
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After 5 years of trying this approach to stimulate the economy the only only thing it has done is artificially inflate he market. It makes it appear that Obama's economic policies are working when the truth is that growth and hiring have slowed and will continue to. The only bright point will be the stock market. That means the disparity between the wealthy and the middle class will increase. Overall wealth(for the wealthy)has increased over this period but not actual income. The vast majority is form the stock market. If you do not believe the market is controlled by the bond buying.(Quantitative easing) is inflating the market. Look back on every major drop in the market and you will see it corresponds with the mention of stopping it.
Jul 31, 2013 3:05PM
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WORST PRESIDENT EVER.

 

War-- straight ahead.

Jul 31, 2013 2:23PM
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The real smart money since the onset of the "Great Recession" has been investing in red ink and paper. As usual, I missed that boat.
Jul 31, 2013 3:20PM
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Anyone with even a shred of business acumen (or common sense for that matter) knows that the FED is UNABLE to unwind this mess.  They have NO CHOICE but to continue to pump until the wheels come off the tracks.  Ben is simply waiting to get off "Mr Greenspan's wild ride" in a couple of months when he leaves his position.
Jul 31, 2013 2:53PM
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The fed should have only three jobs.

1. Maintain an accurate and honest CPI.

2. Keep the real inflation rate between a deflationary 1% and 0% inflation (no more inflation).  This will bring real earnings to saving. If, savers can earn real income on savings, interest rates will stay low.  Also, it will increase the value of the dollar. This would move money to America (an estimate 5 trillion dollars).

3. Replace the fed with a computer program ASAP.

Jul 31, 2013 3:03PM
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Don't be fooled by phony numbers from the BLS, inflation is here and big time.  Stealing savings, devaluation of currency and watering down the debt is the easiest way to eliminate it.  I can't predict when payback time will come but eventually it will happen.  Most likely a triggering event will take place to start the ball rolling, when this happens within 30 days hyper inflation will be upon us. 
Jul 31, 2013 3:07PM
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Phuck the FED.  It is what has Phucked up our country.
Jul 31, 2013 3:08PM
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The FED is the cause of all our problems. They need to let things adjust itself.
Jul 31, 2013 2:20PM
Jul 31, 2013 2:30PM
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Meaning more free political presents eu!
Jul 31, 2013 2:38PM
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Don't get caught left holding the bag when inflation kills us!
Jul 31, 2013 2:32PM
Jul 31, 2013 3:24PM
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With one mighty boot, Benny Bucks Bernanke has kicked the Can of Accountability tickling down Reality Road yet again, and the beatings will continue until morale improves!!!
Jul 31, 2013 2:49PM
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*Shocker*..........they said "Breaking News"   LOL
Jul 31, 2013 2:46PM
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No surprise especially so here on the forum most knew this was a given 
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