Fed sticks with stimulus level as US deficit eases

Julian Harris
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THE US Federal Reserve revealed a relatively bearish outlook over the country’s economy last night as it confirmed that it would stick to its massive $85bn (£53bn) a month stimulus programme.

Yet there was some rosier news in a separate data release by the US Treasury department, which said that the state’s deficit has been cut to a five-year low.

The US federal government took in $75.1bn more than it spent last month, leaving the deficit for its fiscal year, which runs from October to September, at $680bn – down from $1.09 trillion in 2012.

Another impending row over the US debt ceiling may ignite at the beginning of next year, yet the news of a shrinking deficit could ease some fears in the markets.

This month’s government shutdown – prompted by its finances hitting the debt ceiling – is thought by some economists to have impacted on economic growth. Yet the Fed’s latest policy announcement made no mention of the shutdown, focusing instead on a dip on the housing outlook.

“Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months,” the statement said.

The warning over a slowdown in the housing sector was new and marked a more downbeat introduction to the statement.

The previous month’s statement had said: “The housing sector has been strengthening, but mortgage rates have risen further”.

Last night’s statement also dropped a phrase expressing concern about a run-up in borrowing costs, suggesting greater comfort with the current level of interest rates. September’s statement had said “the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market” – yet this was removed this month.