The Federal Reserve said Wednesday that it will keep up its bond buying at a pace of $85 billion a month even as the world’s largest economy and the job market pick up.
“Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated,” the Federal Open Market Committee said at the conclusion of a two-day meeting in Washington. Recent data suggest “a return to moderate economic growth following a pause late last year.”
More than three years into the expansion, the central bank led by Chairman Ben Bernanke is pressing on with open-ended purchases of Treasury and mortgage securities to speed the pace of growth and heal a labor market still scarred by the deepest recession since the Great Depression.
The purchases will remain divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities. The Fed said that the purchases will continue until “the outlook for the labor market has improved substantially in a context of price stability” and that it will continue to reinvest maturing securities.
The Fed also left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.
Stocks remained higher after the statement. The Dow Jones industrial average wasup 44 points shortly before the Fed announcement. It rose as much as 91 points shortly after the Fed released its policy statement at 1 p.m., and ended the day up 55.91 points at 14,511.73.
The Fed said that it “continues to see downside risks to the economic outlook.” It also said that “the housing sectorhas strengthened further, but fiscal policy has become somewhat more restrictive.”
Kansas City, Mo., Fed President Esther George dissented for the second meeting in a row, saying she was “concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
George has said holding interest rates near zero for too long risks creating financial bubbles. She said in January that prices of assets “such as bonds, agricultural land, and high-yield and leveraged loans are at historically high levels” and may signal market imbalances.
Policymakers lowered their expectations for the unemployment rate at the end of the year to a range of 7.3 percent to 7.5 percent from a previous forecast of 7.4 percent to 7.7 percent. The economy will expand2.3 percent to 2.8 percent this year, they estimate, compared with their earlier forecast of 2.3 percent to 3 percent growth.
Thirteen of the 19 Federal Open Market Committee participants estimated that the first increase in the federalfunds rate from its current range of zero to 0.25 percent will occur in 2015, the same as at the December meeting.
Changes in the federalfunds rate are the Fed’s primary lever for influencing the economy. The benchmark rate directly influences other shortterm rates, such as the prime rate and credit-card rates.
However, the Fed’s bigger influence on the economy comes from its monetary policy’s effects on long-term borrowing costs, such as rates on mortgages and corporate debt. Those interest rates affect the prices of stocks, bonds, real estate and other assets.
Central bankers last provided their forecasts in December. The Fed on Wednesday released the policymakers’quarterly economic forecasts at the same time as the statement.
Previously, on days Bernanke held a news conference, the central bank released the statement about 11:30 a.m. and the Federal Open Market Committee forecasts 1 1/2 hours later. From now on, both will be released at 1 p.m.
Bernanke held a news conference at 1:30 p.m. in Washington to further explain the Fed’s statement and forecasts.
Bernanke said the central bank will adjust its bond buying as the economy improves, calling the conditions for stimulus removal “thresholds, not triggers.”
“As we make progress toward our objective, we may adjust the flow rate of purchases from month to month to appropriately calibrate the amount of accommodation,” Bernanke said. “We think it makes more sense to have our policy variable, which is the rate of flow of purchases, respond in a more continuous or sensitive way to changes in theoutlook.”
When the central bank began its third round of largescale asset purchases in September, the most recent LaborDepartment report showed the unemployment rate was 8.1 percent. Joblessness fell to 7.7 percent in February.
President Barack Obama said last week that the primary goal of his second term is job creation, fueled by an effort to make the U.S. a magnet for manufacturing.
“Our top priority must be to do everything we can to grow our economy and create good, middle-class jobs,” Obama said in his Economic Report of the President. While the economy is adding jobs, too many Americans still can’t find full-time employment, he said.
Bright spots in the economy such as housing and autos may be dimmed by automatic budget cuts known as sequestration. The reductions went into effect at the beginning of this month, the start of $1.2 trillion of across-the-board cuts to be spread over nine years that will remain in place unless lawmakers and Obama agree on an alternative.
Information for this article was contributed by Steve Matthews of Bloomberg News.
Business, Pages 23 on 03/21/2013