Fed announces new steps to boost US economy

Updated: 2012-12-13 09:43


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WASHINGTON - The US Federal Reserve on Wednesday announced that it would continue buying longer-term Treasury securities and keep its key short-term rate near zero until the country's unemployment rate drops below 6.5 percent, so as to stimulate economic growth and job creation.

The Fed said that it will purchase longer-term US government debt at a pace of $45 billion per month starting in January, a move to expand its third-round quantitative easing program, also known as the QE3.

The Fed "will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month," according to a statement issued after a two-day policy meeting of the Federal Open Market Committee (FOMC), the Fed's interest-rate setting panel.

The latest move came ahead of the expiration at the end of this month of "Operation Twist," in which the Fed sells 45 billion dollars of short-term Treasuries and replaces them with the same amount of longer-term government debt.

The US central bank also decided to keep the target range for the federal funds rate at 0 to 0.25 percent, and anticipates that this exceptionally low range for the federal funds rate will be appropriate as long as the unemployment rate remains above 6.5 percent and inflation is projected to be no more than 2.5 percent "between one and two years ahead," according to the statement.

This is the first time that the Fed has set explicit unemployment and price thresholds for its monetary policy guidance to better explain its policy intentions to the market.

The new practice aimed to make monetary policy "more transparent and predictable to the public," Federal Reserve Chairman Ben Bernanke said at a press conference after the FOMC meeting.

US economic activity and employment have continued to expand at a "moderate pace" in recent months, despite weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated, said the Fed.

Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed, it noted.

"The Committee (FOMC) remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," added the Fed.

The central bank on Wednesday slightly lowered its outlook for US economic growth next year, predicting that US economy would expand by 2.3 percent to 3.0 percent in 2013, as against the range of 2.5 percent to 3.0 percent projected in September.

Fed policymakers held that the nation's long-term inflation expectations have remained stable and below the Fed's 2-percent objective.