The US Federal Reserve on Wednesday announced
plans to increase economic stimulus efforts, saying it would buy more
securities to bolster the U.S. economy, while, for the first time,
tying its benchmark interest rate directly to the unemployment rate.
The central bank said it would purchase long-term Treasury
securities next year at a pace of 45 billion dollars per month,
replacing an earlier programme known as Operation Twist, in which the
bank had swapped short-term Treasuries for long-term debt in an
effort to keep the balance sheets unchanged. The new effort will
expand its balance sheets.
The Fed will also continue a programme announced in September to
buy 40 billion dollars in mortgage-backed securities each month.
The Fed indicated it would keep its benchmark interest rate at
historic lows of 0 to 0.25 per cent until unemployment falls below
6.5 per cent. Unemployment stood at 7.7 per cent in November.
The bank also tied the interest rate to inflation, saying it would
need a forecast of inflation at no more than half a percentage point
above the long-term goal of 2 per cent for one to two years in order
to consider raising rates.
The Fed has previously given target dates for potentially raising
the interest rate. At its October meeting it said rates would stay at
historic lows until at least 2015.
"The committee remains concerned that, without sufficient policy
accommodation, economic growth might not be strong enough to generate
sustained improvement in labor market conditions," the Federal Open
Market Committe said in a statement announcing the moves.
US economic activity and employment have improved at "a moderate
pace" since the Fed last met in October, but it noted unemployment
remains elevated, despite seeing declining since the summer. Business
spending has slowed even as household spending and the housing market
have improved.
The central bank said it would continue its stimulus efforts
unless the jobs outlook improves "substantially." It also left open
the possibility of taking other steps.
The U.S. economy is threatened by looming steep austerity measures
due to go into effect at the end of the year if Congress and
President Barack Obama cannot agree to more gradual measures to
replace them.
Federal Reserve Chairman Ben Bernanke is expected to address the
so-called fiscal cliff among other issues in a press conference later
Wednesday.
The Fed is also due to release forecasts for economic growth for
next year ahead of Bernanke's remarks.
