By Central Bank News
The Federal Reserve has launched its third major push to speed up the U.S. economy, worried that without further stimulus economic growth will be too weak to reduce unemployment.
The U.S. central bank will purchase $40 billion worth of agency mortgage-backed securities each month for as long as it takes to improve the labor market and will also continue to reinvest proceeds from its holdings of maturing securities, boosting its holdings by some $85 billion a month.
In addition, the Federal Reserve extended by another year its plan to keep interest rates at rock-bottom low, saying it would keep its target for the benchmark federal funds rate at 0-0.25 percent at least through 2015, when it expects the U.S. economy to be on a solid growth path.
The Federal Reserve’s policy-making body made it clear that the central bank would not rest until the unemployment rate, at 8.1 percent in August, starts to decline, as long as inflation remains low.
“If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability,” the Federal Open Market Committee (FOMC) said in a statement after its two-day meeting.
“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens,” the FOMC added.
Despite growing concern over the risks of continued asset purchases, Chairman Ben Bernanke wants to his utmost to live up to the Federal Reserve’s mandate of fostering maximum employment along with stable prices.
“This should make it more obvious that the Federal Reserve will do what is needed to support the economy,” Bernanke told a news conference.
The Federal Reserve has already purchased $2.3 trillion of U.S. government and housing-related debt in an effort to keep interest rates and mortgage rates low, helping improve the housing market.
The Federal Reserve also released its latest economic forecasts, cutting its forecast for economic growth in 2012 to 1.7-2.0 percent, down from its June forecast of 1.9-12.4 percent. In 2013 the U.S. Gross Domestic Product is forecast to increase by 2.5-3.0 percent, up from June’s 2.2-2.8 percent.
The forecast for the unemployment rate was unchanged at 8-8.2 percent in 2012 and then falling to 7.6-7.9 percent in 2013. Inflation was expected to remain below 2 percent through 2105.
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