Monthly Briefing on the World Economic Situation and Prospects, No. 59

Contrary to expectations, the United States Federal Reserve (Fed) announced no changes in its monetary policy stance at the Federal Open Market Committee (FOMC) meeting on 17-18 September, maintaining the federal funds rate near zero and keeping the size of its monthly purchases of?long-term assets at $85 billion. Three major factors may explain why the Fed?decided to delay tapering the purchase of assets. First, recent data did not?confirm a sufficiently strong economic recovery; for instance, the marginal?improvement in the unemployment rate in recent months was largely due?to a decline in labour force participation. Second, financial conditions have?tightened considerably after the Fed?s previous announcement in June, with?long-term interest rates increasing by more than 100 basis points. Third, government financing conditions remain uncertain, especially?regarding the debt ceiling and fiscal sequestration.

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