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Federal Reserve sticks with stimulus

MGN Online
Wednesday, May 1, 2013 - 8:00pm

No surprises here: The Federal Reserve will keep its foot on the gas pedal for the foreseeable future, in its controversial effort to stimulate the recovery.

The central bank pointed to a high unemployment rate and low inflation as key reasons why it will continue buying $85 billion a month in mortgage-backed securities and Treasuries.

That policy, known as quantitative easing, has already injected $2.5 trillion into the economy since December 2008. The aim is to keep long-term interest rates low and thereby stimulate spending.

The Fed said it stands ready to either "increase or reduce the pace" of those purchases in response to economic activity. The remarks came in a statement following a two-day meeting that wrapped up Wednesday.

The Fed also reiterated its plan to keep its key short-term interest rate near zero until the unemployment rate falls to 6.5% or inflation exceeds 2.5% a year.

The Fed is far from meeting those goals. The unemployment rate was 7.6% as of March, and the Fed's preferred measure of consumer prices showed inflation was up only 1% year-over-year recently.

Meanwhile, the Fed pointed to government spending cuts as a key drag on the U.S economy.

"Fiscal policy is restraining economic growth," the central bank said.

Esther George, president of the Kansas City Fed, was the only voting member to oppose the Fed's decision, citing concerns that the Fed's policies would increase "the risks of future economic and financial imbalances."

The Fed's next meeting is scheduled to take place June 18 to 19.

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Thank you for this article. To add more, after the release of August's dismal jobs report, the Federal Reserve said that it would consider further efforts to jump-start the country's economic recovery. Thurs, its plans for that economic stimulus effort were made public. Check more here.

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