WASHINGTON --
The Federal Reserve said Wednesday that it plans to hold short-term interest rates near zero as long as the unemployment rate remains above 6.5 percent, reinforcing its commitment to improve labor market conditions.
The Fed also said it would continue in the new year its monthly purchases of $85 billion in Treasury bonds and mortgage-backed securities, the second prong of its effort to accelerate economic growth by reducing borrowing costs.
The announcements reinforced a policy shift that began in September, formalizing the Fed’s commitment to reduce unemployment and breaking with decades during which limiting inflation was the central bank’s constant priority.
As in September, the Fed sought to make clear Wednesday that it is not responding to evidence of new economic problems but instead is increasing its efforts to address existing problems that have restrained the recovery for more than three years. The most recent jobless rate, for November, was 7.7 percent.
In separate economic forecasts also published Wednesday, the members of the Fed’s policy-making committee made only modest changes to their previous forecasts, published in September, predicting that growth would be slightly slower over the next three years, while unemployment would fall a bit more quickly.
“The committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens,” the Fed’s policy-making committee said in a statement issued after a two-day meeting in Washington.
The action was supported by 11 members of the committee, led by its chairman, Ben S. Bernanke. The only dissent came from Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, who has repeatedly called for the Fed to do less.
The decision to publish economic objectives replaces the Fed’s earlier guidance that it expected interest rates to remain near zero until at least mid-2015. The Fed said, however, that it expected to reach its targets on roughly the same timetable. The economic projections showed that most members of the policy committee expect unemployment to fall below the target of 6.5 percent by the end of 2015.
Some Fed officials argue that the mortgage bond purchases have a larger impact on the economy than buying Treasurys. Fed Governor Jeremy Stein also argued recently that reducing the cost of mortgage loans has a larger economic impact than reducing the cost of corporate borrowing because people are more likely to spend the money they save.
Fed to hold rates down until jobless rate is below 6.5%
This article
Fed to hold rates down until jobless rate is below 6.5%
can be opened in url
https://newssponsored.blogspot.com/2012/12/fed-to-hold-rates-down-until-jobless.html
Fed to hold rates down until jobless rate is below 6.5%
