News Column

Federal Reserve Stimulus Program to Stay in Place

June 19, 2013
Ben Bernanke

Washington (dpa) - The US Federal Reserve on Wednesday said it would continue its bond buying program to bolster the US economy and kept its benchmark interest rate at record low levels.

Speculation about whether the central bank would continue with its 85-billion-dollar a month bond buying programme had left world bond and equities markets yo-yoing in recent weeks.

The Fed signalled that economic and labour conditions had continued to improve since the autumn and that it would continue to monitor the situation as it weighs the future of the stimulus programme.

The Fed lowered its forecasts for unemployment and inflation, predicting unemployment of 7.2 to 7.3 per cent this year compared to a projection of 7.3 to 7.5 per cent in March figures. Inflation was projected at 0.8 to 1.2 per cent for the year, down from 1.3 to 1.7 per cent.

It forecast the economy would grow 2.3 to 2.6 per cent for the year, down slightly from a projection of 2.3 to 2.8 per cent in March.

The central bank said it would maintain its key interest rate near zero, a rate it has maintained since December 2008.

The unprecedented slack money supply has since been supplemented by Fed buying of US government bonds - so-called quantitative easing - in effect, printing money and shoveling it into the private sector in hopes of spurring investment.

The latest round of bond buying was launched in September at a pace of 85 billion dollars a month, or about 1 trillion dollars a year in the 16-trillion-dollar US economy.

The Fed again said it was "prepared to increase or reduce the pace" of its purchases of government bonds "to maintain appropriate policy accommodation as the outlook for the labour market or inflation changes."

Previous Fed policy language had not directly stated a willingness to raise its pace of bond purchases above the current 85 billion dollars a month. The unconventional monetary policy is intended to depress long-term interest rates.

US unemployment edged up to a seasonally adjusted 7.6 per cent in May from April's four-year low of 7.5 percent.

Government surveys showed modestly expanding payrolls, while discouraged workers resuming efforts to find jobs. During the slow economic recovery since the 2007-09 US recession, many people unable to find jobs quit looking, removing them from the official unemployment rate.

Economic expansion picked up in the January-March quarter to an annualized 2.4 percent, according to the Commerce Department, after fourth-quarter growth stalled out at just 0.4 percent.

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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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