MercoPress. South Atlantic News Agency

Fed pledges all efforts and policy tools to combat “elevated” unemployment

Chairman Bernanke said the Fed will continue to purchase securities

In its last meeting before the November 6 presidential election, the Federal Reserve confirmed its current fresh-money support program for the recovery of the US economy arguing that growth continues slowly and unemployment rate “remains elevated”.

In its release following the two-day meeting the Fed emphasized it remains concerned that without sufficient policy accommodation economic growth might not be strong enough to generate sustained improvement in labour market conditions, and if “the outlook for the labour market does not improve substantially, it will continue its purchases of securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved”.

Thus “to support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Federal Open Monetary Committee will continue purchasing additional agency mortgage-backed securities at a pace of 40 billion per month”, said the release.

FOMC “will also continue through the end of the year its program to extend the average maturity of its holdings of Treasury securities, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about 85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative”.

As to the economy diagnosis to support the ongoing stimuli, the Fed said that information received since September suggests that “economic activity has continued to expand at a moderate pace in recent months and growth in employment has been slow, and the unemployment rate remains elevated”.

Likewise household spending has advanced a bit more quickly, but growth in business fixed investment has slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level and finally inflation recently picked up somewhat, reflecting higher energy prices, but “longer-term inflation expectations have remained stable”.

The Committee also decided to keep the target range for the federal funds rate at 0 to ¼% and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and disagreed with the description of the time period over which a highly accommodative stance of monetary policy will remain appropriate and exceptionally low levels for the federal funds rate are likely to be warranted.