By Central Bank News
The U.S. Federal Reserve maintained the target for its key policy rate, the federal funds rate, at 0-0.25 percent and said it expected to maintain rates at these “exceptionally low levels” at least through late 2014.
As expected, the Federal Reserve extended its policy of increasing the average maturity of its securities — known as Operation Twist — by purchasing U.S. Treasuries worth $267 billion by the end of the year. Operation Twist was due to expire at the end of June.
The Federal Reserve has been extending the maturity of its holdings of U.S. Treasury bonds by purchasing bonds with maturities of six to 30 years, and selling or redeeming the corresponding amount of bonds with maturities of 3 years or less.
“This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee (FOMC) said. The FOMC is the Federal Reserve’s main policy making body.
In a statement released after a two-day meeting of the FOMC, the Federal Reserve said low interest rates would be maintained due to moderate economic growth, including low rates of utilization, and a subdued outlook for inflation over the medium term.
The Federal Reserve said employment growth in the U.S. economy had slowed in recent months, household spending appeared to be rising at a slower pace than earlier in the year and the housing sector remains depressed, despite some signs of improvement. Inflation had also eased and long-term inflation expectations were stable.
The FOMC also cut its forecast for U.S. gross domestic product (GDP) growth this year to 1.9-2.4 percent, down from an April projection of 2.4-2.9 percent. Forecasts for 2013 and 2014 were also cut.
“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy,” the Federal Reserve said, adding:
“The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Click to read the Federal Reserve’s monetary policy statement.
Click to read the Federal Reserve’s economic forecast.
Click to read the Federal Reserve’s Treasury purchasing program
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