WASHINGTON (AP) — Now that the Federal Reserve has decided not to slow its bond purchases, a debate over whether its purchases have helped the economy will rage on.
The Fed announced on Sept. 13, 2012, that it would start buying $85 billion a month in Treasury and mortgage bonds. The idea was to lower longer-term borrowing rates. Lower loan rates, Fed officials hoped, would encourage more borrowing and spending and accelerate economic growth.
Is it working?
It depends where you look and how you interpret the economy's shifts. Fed Chairman Ben Bernanke suggested Wednesday that the bond purchases have helped offset the impact of higher taxes and government spending cuts that took effect this year.
Here are some key measures of the economy's health and how they've changed in the past year:
The unemployment rate has declined from 7.8 percent in September 2012 to 7.3 percent now. But even that modest drop hasn't always been for the right reasons. Unemployment has declined partly because more Americans have retired, remained in school or given up looking for work — not because many employers have started hiring aggressively. The government counts people as unemployed only if they're looking for a job. Chairman Ben Bernanke acknowledged all this in July when he said the unemployment rate, "if anything, overstates the health" of the job market. On Wednesday, Bernanke attributed most of the drop in the rate in the past year to greater hiring.
— JOB GROWTH
Hiring has picked up since last September — just not by very much. In the six months that ended in September 2012, employers added an average of 130,000 jobs a month. That average jumped to 208,000 in the six months that followed the Fed's announcement. But over the longer term, the improvement is more modest: Employers added an average of 178,000 jobs in the 12 months before the Fed's bond buying began. That inched up to just 188,000 in the 11 months that ended in August, the latest period for which figures are available.
— MORTGAGE RATES
Lowering mortgage and other interest rates was the central goal of the Fed when it launched its bond purchases. In November, the average on a 30-year fixed mortgage fell to 3.31 percent — its lowest point on records dating to 1971, according to Freddie Mac. That was down from a much higher 4.12 percent in the week before the Fed's announcement. Rates remained low until Bernanke signaled in late May that the Fed could end its purchases this year. Since then, long-term mortgage rates have risen sharply. The 30-year mortgage rate averaged 4.57 percent last week.
— HOME SALES
Lower borrowing rates encouraged more Americans to buy homes. Sales of previously owned homes jumped to an annual rate of 5.39 million in July from 4.78 million last September. That's a 13 percent jump in 10 months. In a similar period before the bond purchases began, home sales rose nearly 9 percent. Mortgage rates were already historically low before the bond-buying program began. In part, that's because the Fed has held a short-term rate it controls at a record low near zero since December 2008.
— ECONOMIC GROWTH
Lower rates have boosted home sales and construction, but the housing recovery was largely under way by the time the bond purchases began. That's one reason economic growth hasn't accelerated. The economy expanded at a 2.5 percent annual rate from April to June. That was actually slightly below the 2.8 percent growth reached in the July-September quarter of 2012, when the bond purchases began.
Many of the Fed's critics have worried that its ultra-low-rate policies would ignite inflation. The Fed, after all, buys Treasury bonds and mortgage-backed securities by creating new money. That new money gets pumped into the financial system when the Fed buys the bonds from banks. More money chasing fewer goods can push prices up. Yet so far, there's no such sign: Consumer prices rose just 1.5 percent in the 12 months that ended in August. When the Fed launched its purchases, the annual inflation rate was a bit higher: 2 percent.
— THE STOCK MARKET:
Stock prices have risen, as the Fed hoped. The idea was to draw investors out of extremely low-yielding bonds and into stocks. The Dow Jones industrial average closed at just over 13,333 the day before the Fed's announcement. On Tuesday, it closed at nearly 15,530 — 16 percent higher.
— THE BOND MARKET:
Many factors affect the returns that investors earn on Treasurys. This makes it hard to gauge the Fed's impact. The return, or yield, on the 10-year Treasury note was 1.76 percent the day before the program was announced, though it had already fallen in anticipation of the Fed's move. It fell to 1.57 percent in mid-November, the lowest since August. Bernanke's comments May 22 sent the yield back above 2 percent, and it closed at 2.87 percent Monday. Other developments, such as Europe's financial crisis, have also occasionally pushed rates down.