US Fed to maintain stimulative monetary policy

Updated: 2013-05-02 11:07


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WASHINGTON - The US Federal Reserve on Wednesday announced that it will keep the short-term interest rate near zero and continue its assets purchase program to bolster economic growth and job creation.

US economic activity has been expanding at a "moderate" pace. Labor market conditions have shown "some improvement" in recent months but the unemployment rate remains elevated, the Fed said in a statement after wrapping up its two-day policy meeting of the Federal Open Market Committee (FOMC), its policy-setting panel.

The Fed took notice of further strengthening of the housing sector, but said fiscal policy is restraining economic growth.

Inflation has been running "somewhat below" the target, and long-term inflation expectations have remained stable, it added.

The central bank said it continues to see "downside risks" to the economic outlook and would continue the 85-billion-dollar monthly purchase of treasury and mortgage-backed securities, known as quantitative easing, until the outlook for the labor market improves substantially.

Since the onset of the financial crisis, the Fed has completed two rounds of quantitative easing programs, dubbed as QE1 and QE2. It announced another round of quantitative easing last September with open-ended purchases of $40 billion mortgage-backed securities per month. It expanded the bond-buying program with additional monthly buying of $45 billion treasury bonds in December 2012. The Fed's balance sheet has ballooned to about $3.2 trillion.

"The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes," the statement noted.

The Fed reiterated its pledge to keep the short-term interest rates at near zero range as long as the unemployment rate remains above 6.5 percent and inflation is projected to stay below 2.5 percent.

Esther George, president of the Federal Reserve Bank of Kansas City, voted against the Fed's support for growth, citing concerns over financial imbalances and long-term inflation expectations.