The Federal Reserve has announced another cutback in the bond-buying it’s been using to pump life into the economy, and it will allow deep-in-the-cellar interest rates to continue to work their magic.

It’s still not clear when the Fed will hike rates again. The central bank continues to say only that it will wait “a considerable time” after the bond purchases end.

Stimulus sliced by another $10B

At today’s sixth policy meeting of the year, the Fed’s economic stimulus program known as quantitative easing was reduced by another $10 billion, to $15 billion. That means next month the Fed will purchase $5 billion worth of mortgage-backed securities and $10 billion of longer-dated Treasuries. The central bank first announced the gradual end of this latest round of quantitative easing, or QE, in December 2013, when its bond purchases totaled $85 billion per month.

If all goes according to plan, the central bank will remove the last vestiges of QE next month.

The Fed’s key interest rate remains unchanged, targeting between 0 and 0.25 percent. That rate, known as the federal funds rate, is what banks charge each other for very short-term loans, and it’s the benchmark for many types of consumer loans and credit.

Elaboration from Yellen

Fed Chair Janet Yellen spoke with reporters after the meeting of the Fed’s Federal Open Market Committee. Bankrate Washington Bureau Chief Mark Hamrick offered these tweets from the news conference:

 

 

How the Fed sees things

Even with no big changes, the statement released after the two-day meeting offered a glimpse of how the central bank currently views the economy.

Fed policymakers indicate that a little rain has fallen on the economic recovery parade since their last meeting in July. A prime example is the employment report for August, which showed fewer jobs added to payrolls than had been expected.

“On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources,” says the Fed’s monetary policy statement.

“In July, the Fed noted the ‘rebound’ in economic activity, highlighting the marked improvement in the second quarter relative to the extreme weakness at the start of the year,” says Lindsey Piegza, chief economist and managing director of Sterne Agee. “Momentum, however, has clearly waned, with weaker-than-expected readings in the most recent employment, consumption and housing reports.”

How the Fed has seen various indicators:

Fed statement Economic growth Labor market and unemployment Household spending / Business investment Housing Inflation
Jan. 29 Economic growth: Picked up in recent quarters. Labor market and unemployment: Mixed but improving.

Unemployment declined but remains elevated.

Household spending / Business investment: Advanced more quickly. Housing: Recovery slowed somewhat. Inflation: Below the Fed’s targets.
March 19 Economic growth: Slowed during winter months. Labor market and unemployment: Mixed but improving.

Unemployment remains elevated.

Household spending / Business investment: Continued to advance. Housing: Recovery remained slow. Inflation: Below the Fed’s targets.
April 30 Economic growth: Picked up recently after winter slowdown. Labor market and unemployment: Mixed but improving.

Unemployment remains elevated.

Household spending / Business investment: Rising more quickly. / Edged down. Housing: Recovery remained slow. Inflation: Below the Fed’s targets.
June 18 Economic growth: Rebounded in recent months. Labor market and unemployment: Showing further improvement.

Unemployment, though lower, remains elevated.

Household spending / Business investment: Rising moderately. / Resumed advance. Housing: Recovery remained slow. Inflation: Below the Fed’s targets.
July 30 Economic growth: Rebounded in the second quarter. Labor market and unemployment: Improved. Unemployment declined further. Household spending / Business investment: Rising moderately. / Advancing. Housing: Recovery remained slow. Inflation: Somewhat closer to the Fed’s targets.
Sept. 17 Economic growth: Restraint from fiscal policy is diminishing. Labor market and unemployment: Improved somewhat further. Unemployment is little changed. Household spending / Business investment: Rising moderately. / Advancing. Housing: Recovery remained slow. Inflation: Below the Fed’s targets.

The economic numbers haven’t all been bad. In the interim between meetings, the manufacturing sector reported the highest gains since March 2011.

But for the Federal Reserve, healthy levels of inflation and employment are the twin goal posts. Those indicators have been so-so. Hours before the Fed released its statement, the government reported the opposite of inflation: U.S. consumer prices fell in August for the first time in over a year. The unemployment rate for August stood at 6.1 percent, and hiring was surprisingly weak.

No big rush for a rate hike

“They want to keep rates low as long as they can,” says Charlie Bilello, director of research at Pension Partners, an investment advisory firm managing mutual funds and separate managed portfolios.

“They will talk about long-term unemployment, that real wage gains are still way less than any other recovery in history, and (the Fed) will downplay the gains we’ve had in the economy — for instance, the strength in manufacturing,” he says.

Once the asset purchases are officially finished, the debate over the timing of an interest rate increase may get heated. Look for the Fed’s inflation hawks to take the gloves off — in a kind and collegial way of course.