Fed admits ‘temporary pause’ in US economy and confirms stimuli package
The Federal Reserve left in place its monthly 85 billion dollars bond-buying stimulus plan, saying US economic growth had stalled but indicating the pullback was likely temporary.
Describing the US job market as continuing its modest pace of improvement, the Fed repeated a pledge to keep purchasing securities until the outlook for employment improves substantially.
Growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors, the central bank said in Wednesday’s release after a two-day meeting.
A report earlier in the day showed the US economy unexpectedly contracted in the fourth quarter as inventory investment slowed and government spending plunged. Analysts said Superstorm Sandy in late October also disrupted the recovery.
The Fed has kept overnight interest rates near zero since late 2008 and it has tripled its balance sheet to about 3 trillion dollars through its purchases of securities, which are aimed at pushing longer-term borrowing costs lower.
While the recovery from the 2007-2009 recession has been stubbornly tepid, the Fed's policy committee voiced confidence it would remain on track with continued help from monetary policy.
The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate, the Fed said.
A report on Friday is expected to show the US jobless rate remained stuck at 7.8% for a third straight month in January. The Fed repeated that it would keep overnight rates near zero until the unemployment rate hits 6.5%, as long as inflation does not threaten to exceed 2.5%.
US stocks and the dollar were little changed after the Fed's announcement, while prices for longer-dated US Treasuries trimmed losses with the yield on the 10-year note hovering just above 2%.