Even with signs of an improving economy, the Federal Reserve said March 20 that it will continue its bond-purchasing program and hold down long-term interest rates in an effort to further stimulate economic growth, USA Today reported March 20.
The Fed reported that its policy of buying $85 billion a month in mortgage-backed securities and Treasury bonds— known as quantitative easing — will continue until the labor market picks up. In fact, Federal Reserve Chairman Ben Bernanke said he is concerned enough about federal budget cuts slowing economic growth that the Fed may even increase its bond buying.
Bernanke also said the Fed plans to keep benchmark short-term interest rates near zero until at least 2015.
Bernanke did acknowledge that the labor market has shown growth, with non-farm jobs growth totaling 236,000 in February and averaging 205,000 per month for the past four months. However, Bernanke said that the Fed still needs to see sustained improvement — which means several more months of growth. He said the Fed has no plans to discontinue quantitative easing until the unemployment rate drops to 6.5 percent.
The Fed indicated that it expects an improved job outlook in 2013, anticipating the unemployment rate to fall to 7.3 to 7.5 percent this year. It doesn’t expect the jobless rate to reach 6.5 percent until 2015, USA Today reported.
The Fed also lowered its economic growth forecast, saying it expected the economy to grow 2.3 to 2.8 percent in 2013 as opposed to its December forecast of 2.3 to 3 percent.
The Fed also said it expected inflation to remain low, rising only 1.3 to 1.7 percent this year.
While some have expressed concerns that the Fed’s policies could lead to greater economic instability in the future, Bernanke said that the benefits of quantitative easing outweigh the risks, particularly since a payroll tax increase in January and federal budget cuts are likely to cut economic growth by 1.5 percent, USA Today reported.