The Federal Reserve yesterday announced that it will continue to keep interest rates near zero and continue to buy debt and print money. But the central bank has at least linked its monetary policy to specific targets for the first time.
Fed officials say that it will hold off on raising interest rates until unemployment dips below 6.5 percent or inflation climbs above 2.5 percent. As predicted by economists, the Fed said it would expand efforts at quantitative easing and buy $45 billion in Treasury bonds per month, beginning in 2013. Monthly purchases of $40 billion in mortgage debt are already under way.
While officials have set goals that would allow the Fed to draw down on its aggressive monetary policy, central bankers say that lack of improvement will lead to further financial meddling.
According to the Federal Open Markets Committee:
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
The Fed asserts that the economy continues to grow “at a moderate pace” but believes that the economy remains too weak to stand on its own.