WASHINGTON — The Federal Reserve, noting that economic growth had “paused” in recent months, said Wednesday that it would continue its efforts to stimulate the economy.
The Fed attributed the pause in growth to the effects of Hurricane Sandy and other “transitory factors,” and it said that there were signs of increased strength in areas including consumer spending and housing.
It affirmed the stimulus program it announced in December, saying it would hold short-term interest rates near zero at least until the unemployment rate fell below 6.5 percent and expand its holdings of Treasury securities and mortgage-backed securities by $85 billion each month.
“The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline,” the central bank said in a statement released after the conclusion of a two-day meeting of its policy making committee.
The decision was supported by 11 of the 12 members of the Federal Open Market Committee. Esther George, president of the Federal Reserve Bank of Kansas City, was the only dissenter, citing concerns about economic stability and inflation.
The Fed made its announcement hours after the government reported that economic growth was unex-pectedly weak in the fourth quarter. The Commerce Department said the economy contracted by 0.1 percent, the first decline since 2009.
For the year, the economy grew by 2.2 percent - a decent pace in normal times but not fast enough to help the millions of Americans still unable to find work.
The central bank is trying to increase economic activity by holding down interest rates and reducing the availability of safe assets such as Treasury bonds, pushing investors to take larger risks and reducing borrowing costs for businesses and consumers.
Officials have pointed to increased sales of cars and homes as evidence that the policy is working, but they also have sought to temper expectations, warning that monetary policy cannot offset reductions in government spending.
“Everything has moved on from the crisis except the Fed,” said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. “The reality on the ground is far better by any measure than it was in 2008 or 2009, yet monetary policy is more unconventional and more aggressive.”
The unemployment rate has not declined since the Fed started its latest round of purchases in September. The rate was 7.8 percent in December, the same as four months before. The government will report January’s rate on Friday.
Fed officials also are wrestling with the potential costs of further expanding the central bank’s vast investment portfolio.
Some critics warn that the Fed’s efforts will loosen its control over inflation, but those warnings so far have come to nothing. Inflation has fallen below the 2 percent annual pace that the Fed regards as healthy, leading some officials to argue the economy could use a little more inflation.
Fed officials have said they are more concerned that asset purchases will destabilize financial markets, by removing safe assets from circulation, increasing the volatility of prices, or encouraging too much speculation.
In December, the Fed said it would purchase Treasuries at an initial pace of $45 billion a month, adding to the commitment it made in November to buy $40 billion a month in mortgage-backed securities.
Ben Bernanke, the Fed chairman, said at a news conference after the December announcement that the Fed might adjust the volume of purchases.
“The committee intends to be flexible in varying the pace of securities purchases in response to information bearing on the outlook or on the perceived benefits andcosts of the program,” Bernanke said.
At the time, some analysts saw evidence that the Fed already was contemplating the possibility that it was doing too much. That impression was reinforced by an account of the meeting released a few weeks later that said some officials wanted to reduce the pace of purchases by the summer.
But it would be relatively easy for the Fed to do less. The more worrying possibility is that the economy might need additional help, forcing the Fed to consider whether it is able to do more - and whether it should.
Information for this article was contributed by Joshua Zumbrun and Jeff Kearns of Bloomberg News.
Business, Pages 27 on 01/31/2013