If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” theFederal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.
The FOMC said it would likely hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
Chairman Ben S. Bernanke is enlarging his supply of unconventional tools to attack unemployment stuck above 8 percent since February 2009, a situation he has called a “grave concern.” The decision risks provoking a renewed backlash from Republicans, including presidential nominee Mitt Romney, who say Bernanke’s policies threaten to ignite inflation while doing little to spur the economy.
The Fed said it will continue its program to swap $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist. The central bank will also continue reinvesting its portfolio of maturing housing debt into agency mortgage- backed securities.
Stocks, Treasuries
Stocks soared after the statement. The Standard & Poor’s 500 Index rose 0.7 percent to 1,446.57 at 12:48 p.m. in New York. The yield on the 10-year Treasury note rose to 1.81 percent from as low as 1.71 percent.
“The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the statement said.
Richmond Fed President Jeffrey Lacker dissented for the sixth consecutive meeting, saying he opposed additional asset purchases. Lacker opposed the FOMC’s June decision to extend Operation Twist through the end of the year and has said he expects interest rates will need to be raised in 2013.
Economic Forecasts
The Fed will issue forecasts for unemployment, growth, inflation and interest rates at 2 p.m. today, and Bernanke is scheduled to speak at a press conference starting at 2:15 p.m. in Washington.
Today’s Fed meeting comes less than two weeks after Bernanke’s Aug. 31 speech in Jackson Hole, Wyoming, when he lamented the state of the labor market and defended his “nontraditional policies,” saying “the costs, when considered carefully, appear manageable.”
Growing expectations of additional stimulus have helped propel a rally in stocks and commodities. The Standard & Poor’s 500 Index rose 4.5 percent through yesterday since the Fed’s last statement on Aug. 1 to near the highest level in more than four years. The S&P GSCI Spot Index of 24 commodity prices has risen 7.1 percent.
Weak employment data has increased pressure on the central bank to act. The Labor Department said Sept. 7 that the economy added 96,000 jobs in August, less than forecast by economists and down from a 141,000 increase in July. Average hourly earnings were little changed, and 368,000 Americans left the labor force.
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