The Federal Reserve will keep up its bond buying at a pace of $85 billion a month even as the world’s largest economy and the job market pick up.
“Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. Recent data suggest “a return to moderate economic growth following a pause late last year.”
More than three years into the expansion, the central bank led by Chairman Ben S. Bernanke is pressing on with open-ended purchases of Treasury and mortgage securities to boost the pace of growth and heal a labor market still scarred by the deepest recession since the Great Depression.
The purchases will remain divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities. The Fed said that the purchases will continue until “the outlook for the labor market has improved substantially in a context of price stability” and that it will continue to reinvest maturing securities.
The Fed also left unchanged its statement that it plans to hold its target interest rate near zero as long as unemployment remains above 6.5% and inflation is projected to be no more than 2.5%.
Stocks and Treasury yields remained higher after the statement. The Standard & Poor’s 500 Index rose 0.5% to 1,556.02 at 2:04 p.m., and the yield on the 10-year Treasury note climbed to 1.94% from 1.9% late yesterday.
Kansas City Fed President Esther George dissented for the second meeting in a row, saying she was “concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
George has said holding interest rates near zero for too long risks creating financial bubbles. She said in January that prices of assets “such as bonds, agricultural land, and high- yield and leveraged loans are at historically high levels” and may signal market imbalances.
Policy makers lowered their expectations for the unemployment rate at the end of the year to a range of 7.3% to 7.5% from a previous forecast of 7.4% to 7.7%. The economy will expand 2.3% to 2.8% this year, they estimate, compared with their earlier forecast of 2.3% to 3% growth.