By www.CentralBankNews.info The U.S. Federal Reserve will continue to purchase $85 billion worth of mortgage-backed securities and long-term Treasury bonds a month “until the outlook for the labor market has improved substantially in a context of price stability.”
The decision by the Federal Reserve took financial markets by surprise as the overwhelming majority of economists and analysts had expected the Fed to start reducing its purchases of assets this month due to the recent decline in the unemployment rate.
The Federal Reserve’s policy making body, the Federal Open Market Committee (FOMC) said the economy and labor market had improved over the last year when its began its latest asset purchase program, known as Quantitative Easing 3, despite the impact of the cuts in the federal deficit.
“However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the FOMC said after a two-day meeting.
“The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability,” it added.
“In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective,” the Fed said, adding that asset purchases were not on preset course and the pace of the purchases will depend on conditions in the labor market.
The Fed affirmed that it still expects to keep the federal funds rate between zero and 0.25 percent at least as long as the unemployment rate is above 6.5 percent and inflation is below 2.5 percent.
The U.S. unemployment rate has been declining steadily from a high of 10.0 percent in October 2009 to 7.3 percent in August but much of the improvement has also been due to workers no longer seeking jobs.
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