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Federal Reserve chairman Ben Bernanke (J. Scott Applewhite/AP)
Federal Reserve chairman Ben Bernanke (J. Scott Applewhite/AP)

Fed stays course ahead of U.S. election Add to ...

Still fretting about high unemployment and sluggish growth, Ben Bernanke says the U.S. Federal Reserve will keep pumping cash into the financial system via regular purchases of mortgage-backed securities and other efforts.

The central bank also renewed its commitment Wednesday to keep its key lending rate near zero “at least through mid-2015.”

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The Fed statement was near-identical to the one it issued after its Sept. 13 meeting.

This week’s two-day meeting of the Fed’s rate-setting open market committee comes with less than three weeks left before the Nov. 6 U.S. elections. And analysts suggested the Fed chairman was eager to avoid accusations of playing politics with any new monetary easing measures now.

“After the big changes in September, and the presidential election less than two weeks away, officials were probably happy to make this week’s meeting as much of a non-event for markets as possible,” said Jim O’Sullivan, chief U.S. economist High Frequency Economics Ltd.

In September, Mr. Bernanke announced an open-ended plan to buy $40-billion worth of mortgage-backed bonds every month, from banks and other dealers, in a bid to free up capital and push mortgage rates lower. The plan, dubbed QE3, marks the third round of so-called quantitative easing under Mr. Bernanke’s watch.

The New York Times reported this week that Mr. Bernanke has told close friends he probably will not stand for a third term at the central bank even if President Barack Obama wins election.

Republican presidential nominee Mitt Romney has already said he would not keep Mr. Bernanke if he wins the U.S. presidency. Mr. Bernanke’s term as chairman ends in January, 2014.

The Fed’s unconventional efforts to spur growth have been criticized by many who argue that they threaten future inflation and make it easier for the federal government to run chronic deficits.

The measures are even controversial within the Fed, where FOMC member Jeffrey Lacker has repeatedly voted against various monetary-easing initiatives, citing inflation worries.

Economists said Wednesday’s statement leaves the door open for the Fed to announce further asset purchases at its final meeting of the year, Dec. 11-12.

“The next meeting in December is likely to be a bit more interesting,” said Paul Ashworth, chief U.S. economist at Capital Economics.

The Fed barely changed its view of the economy in the statement. It acknowledged the housing sector is continuing to recover “albeit from a depressed level.” The Fed added that a pickup in household spending has been offset by slower investment by businesses.

There was more evidence Wednesday that the U.S. housing industry is growing again. Purchases of new homes rose 5.7 per cent to an annual pace of 389,000 – the highest level in more than two years.

“We’re starting to see more and more momentum each month in the housing market,” said Robert Kavcic, a Bank of Montreal economist in Toronto.

The housing industry has been a drain on the U.S. economy for much of the past years as foreclosures skyrocketed and prices plunged.

Follow on Twitter: @barriemckenna

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