Economy Watch: Fed Says No Taper for Its Stimulus; CPI Points to Very Low Inflation; ADP Reports Modest Job Growth

The Federal Open Market Committee said on Wednesday it isn't going to taper its stimulus just yet. The Bureau of Labor Statistics reported that there hasn't been much inflation. And according to ADP, the private sector added 130,000 jobs in October.

The Federal Open Market Committee said on Wednesday that it plans to continue to stimulate the U.S. via its continuous (monthly) bond-buying program – at $85 billion a month – and isn’t going to taper that figure just yet. The economy’s still too sluggish for that, in the central bank’s estimation.

And what’s making the economy so sluggish? “Fiscal policy is restraining economic growth,” the Fed said flatly in its statement. That is, the sequester, which cut federal spending at the beginning of 2013 and promises to cut more at the beginning of next year, unless (against expectations) Congress agrees to adjust the planned cuts during its post-shutdown conferences. Also, at a more fundamental level, perhaps the Fed is trying to say that Congress itself is the source of so much uncertainty that it’s weighing growth down.

In any case, the FOMC made no promises about when tapering would come. “In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective.” That is, in Fed-speak, “we’re thinking about it.”

CPI Points to Very Low Inflation

One consideration that the Fed takes into account when thinking about tapering QE3 is inflation. Lately there hasn’t been much, and on Wednesday the Bureau of Labor Statistics reported that there still isn’t much: the U.S. CPI was up 0.2 percent month over month in September. Over the last 12 months, the all items index increased 1.2 percent.

Not only isn’t that much inflation, that’s going over the fence and saying howdy to deflation (which would be a whole other can of worms if it happened, to mix metaphors). Most of the September rise was because of energy price increases, with the energy index up 0.8 percent. Take food and energy out of the equation and the CPI was up a scant 0.1 percent for the month.

The BLS’s shelter and medical care indexes also advanced and accounted for most of the small non-energy increase for the month. New car prices and airline fares rose as well, while apparel and recreation prices dropped. The shelter and medical care indexes were both up 2.4 percent year over year, while the food index has risen 1.4 percent for the year. The cost of energy is actually down 3.1 percent since last year, owing mostly to the dropping price of gas.

ADP Reports Modest Job Growth in October

Automated Data Processing reported on Wednesday that the U.S. private sector added 130,000 jobs in October. That’s a little less than expected, and has been attributed to uncertainty during the shutdown and debt-ceiling fracas. The BLS’ monthly report on employment – which usually is quite different from ADP’s — will not follow this Friday, but on Nov. 8.

Wall Street had a down day on Wednesday after its Tuesday surge, with the Dow Jones Industrial Average dropping 61.59 points, or 0.39 percent. The S&P 500 was down 0.49 percent and the Nasdaq fell 0.55 percent.