Federal Reserve Bldg

Federal Reserve Sticks to QE3 Guns, Economic Growth 'Moderate'

Oct. 24, 2012
FOMC says its broad policy to keep interest rates low would stay in place even once the economic recovery strengthens.

The Federal Reserve confirmed its commitment Wednesday to the six-week-old QE3 stimulus, saying that the U.S. economy still needed the support of its easy money programs.

In its last meeting before the U.S. presidential election -- which, if challenger Mitt Romney wins, could trigger an economic policy shift -- the Fed's rate-setting board chose to make no changes to its monetary stance.

Brushing off some recent signs of stronger expansion, the Federal Open Market Committee said economic growth remained at a "moderate" pace.

It noted a rise in household spending and an improving housing industry, but said growth in business investment had slowed, and that joblessness was still high.

Fed 'Remains Concerned'

The Fed "remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions," the FOMC said in a statement after a two-day meeting.

The economy also remains vulnerable to strains in global financial markets, it added.

Benchmark Interest Rate Unchanged

The FOMC kept its benchmark interest rate locked at 0-0.25% as expected, and said it expected to keep the rate at a very low level "at least through mid-2015."

As expected, the Fed said its broad policy to press down interest rates would stay in place "for a considerable time after the economic recovery strengthens."

The central bank was referring to its two stimulus programs, QE3 launched last month and the nearly year-old "Operation Twist," through which it invests $85 billion each month in bond purchases in an effort to drive down long-term interest rates to stimulate investment and hiring.

If the country's high unemployment situation does not improve "substantially," the FOMC said it will continue the existing program, add other asset purchase operations and employ other monetary tools to boost the economy.

The FOMC statement made no mention of its ongoing discussion, revealed in the minutes of the early September meeting, over whether it should tie its eventual raising of interest rates to an explicit target level for unemployment.

With inflation expected to remain subdued over the next two years, the Fed has focused its attention this year on how it could help stimulate hiring via monetary easing.

But setting a target level for joblessness -- which currently stands at 7.8% -- remains a point of contention between FOMC members, based on the minutes and speeches by Fed officials.

The meeting came before voters go to the polls on Nov. 6 to choose between President Barack Obama and Mitt Romney as the U.S. leader for the next four years.

Obama has been a supporter of Fed Chief Ben Bernanke, but Romney has been strongly critical of the easy money policies and said he would replace Bernanke if he wins.

Bernanke's term doesn't expire until 2014, though, and it is unlikely that a newly elected Romney would seek to force him out earlier.

"After the big changes in September, and the presidential election less than two weeks away, officials were probably happy to make this week's meeting as much of a non-event for markets as possible," said Jim O'Sullivan of High Frequency Economics.

"More interesting will be the next FOMC meeting on Dec. 11 and 12. Officials will likely make a decision then on whether QE3 will be extended to include Treasuries purchases when Operation Twist ends at year-end. We expect it will be."

Copyright Agence France-Presse, 2012

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