Fed stands pat on bond purchases

WASHINGTON – The Federal Reserve said Tuesday it will maintain the pace of its $600 billion Treasury bond-buying program because the economy is still too weak to bring down high unemployment.

The Fed’s bond purchases are intended to lower long-term interest rates, lift stock prices and encourage spending. Its decision not to increase its purchases rattled bond investors, who fear a tax-cut plan in Congress could fuel enough growth to drive up interest rates.

Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi UFJ, said investors worry the Fed’s bond-buying plan won’t achieve its goal of reducing long-term rates. Those rates have been rising as investors have raised expectations for growth and inflation, especially as a tax-cut plan takes shape in Congress.

“Maybe bond buyers wanted to hear the Fed say it’s not working, so we will buy more,” Rupkey said of the bond purchases.

Fed policymakers said they’ll continue to monitor the program. They left open the option of buying more bonds if the economy weakens, or fewer if it strengthens more than expected.

After the Fed issued its statement, Treasury prices sank, pushing their yields higher. The yield on the 10-year Treasury note jumped to 3.46 percent, its highest level since May and well above the 3.28 percent it traded at late Monday. The yield on the 10-year note helps set rates on many kinds of loans including mortgages. Higher rates could slow, and potentially derail, the economy’s progress.