Fed debate moves from tapering to extending asset purchases

Fed to keep buying bonds until the job market improves?

“Rising home prices can create positive spillovers to the rest of the economy as higher home prices lift household wealth and reduce the number of homeowners with negative equity,” Dudley said. 

Stocks Rally 

Gains in share prices stoked by expectations of continued Fed easing have also boosted wealth. The Standard & Poor’s 500 Index advanced 0.3 percent to 1,583.85 today to extend its gain this year to 11 percent. The benchmark gauge for U.S. equities remains near its all-time high of 1,593.37 on April 11.

Sales of new homes increased in March, capping the best quarter for the industry since 2008. The average pace of new and existing-home sales combined climbed to 5.36 million in the first quarter, the strongest since the third quarter of 2007, according to calculations by Bloomberg.

“Housing has certainly seen positive support from quantitative easing as low interest rates support refinancing and new purchases,” said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York. “Housing is crucial to generating a sustainable recovery in the U.S.”

Stimulus has also helped bring down the jobless rate faster than Fed projections, even as 11.7 million Americans remained out of work on a seasonally adjusted basis as of March. 

Jobs Forecast 

Unemployment was 7.8 percent in September. At their meeting that month, FOMC participants forecast a decline in unemployment to 7.6 percent to 7.9 percent by the end of this year.

In March, with the joblessness declining to 7.6 percent, officials again cut their projections to 7.3 percent to 7.5 percent. They probably expect the third round of bond buying to reduce unemployment by as much as 0.4 percentage point, said Nathan Sheets, global head of international economics at Citigroup Inc. in New York.

“They are clearly getting these kinds of effects,” said Sheets, the Fed’s director of international finance from 2007 until 2011. “If anything, the program may even be a bit more powerful” than officials anticipated.

Even so, officials are on guard for a springtime slowdown after job growth sagged to 88,000 in March from 268,000 the previous month.

Reports from the Commerce Department showed retail sales fell in March by the most in nine months, while demand for durable goods slumped by the most in seven months. 

GDP Growth 

Economic growth will probably slow to a 1.5 percent annual pace in the second quarter following a gain of 3 percent in the first three months of the year, according to the median estimates of 69 economists in an April 5-9 survey by Bloomberg News. The Commerce Department will announce first-quarter GDP tomorrow.

“I don’t think we should be complacent” about the economic outlook, Evans said last week in a speech in Chicago urging continued bond buying. “I would not be surprised if we end up doing this until late 2013, ultimately ending the program in 2014 at some point.”

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