Fed to Keep Rate Near Zero; Bernanke Forecasts Bond-Buying Slowing
In a statement released today, the Federal Reserve said it will maintain its current securities-buying program, as well as its 0% to 0.25% target range for the federal funds rate, but signaled it's closer to slowing the $85 billion-a-month buying program.
In its statement, the Federal Reserve noted that, although economic activity has been expanding at a "moderate pace" due to an improved labor market, household spending, business investment, and housing market, fiscal policy continues to "restrain" growth and that "appropriate policy accommodation" is necessary for improvements to continue. As such, the Federal Open Market Committee will continue to buy agency mortgage-backed securities at a pace of $40 billion per month and $45 billion of longer-term Treasury securities per month. The Committee hopes that these moves will have the double effect of supporting mortgage markets while keeping longer-term interest rates low.
Speaking at a news conference, Chairman Ben Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the economy continues to improve. He said the reductions would occur in "measured steps" and that the purchases could end by the middle of next year. Bernanke likened any reduction in the Fed's bond purchases to a driver letting up on a gas pedal rather than applying the brakes.
The Fed's 0% to 0.25% target range for the federal funds rate "will remain appropriate for a considerable time," according to the statement. The federal funds rate is what banks charge each other to borrow money at the Fed. The Committee expects to keep rates at this level until the unemployment rate drops below 6.5% (assuming inflation remains under control).
-- Material from The Associated Press was used in this report.
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