Bernanke says Fed on course to end asset buying in mid-2014

Unemployment Threshold

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 the outlook for inflation doesn’t exceed 2.5%.

Bernanke said policy makers might aim for a lower unemployment threshold before considering an increase in short- term interest rates.

“In terms of adjusting the threshold, I think that’s something that might happen,” he said in response to a question. “If it did happen, it would be to lower it, I’m sure, not to raise it.” He said an interest-rate increase is still “far in the future.”

Fed officials lowered their forecasts for the unemployment and inflation rates this year.

They now see a jobless rate of 7.2% to 7.3%, compared with 7.3% to 7.5% in their March forecasts. They predict the jobless rate will fall to 6.5% to 6.8% in 2014, compared with 6.7% to 7% in March.

Labor Market

“Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated,” the committee said. “Partly reflecting transitory influences, inflation has been running below the committee’s longer-run objective, but longer term inflation expectations have remained stable.”

Fifteen of 19 policy makers said the federal funds rate will be increased in 2015 or later, according to today’s forecasts. In March, 14 policy makers predicted an increase in 2015 or later.

The Fed repeated that it will keep buying assets “until the outlook for the labor market has improved substantially.” Bond purchases will remain divided between $40 billion a month of mortgage-backed securities and $45 billion a month of Treasury securities. The central bank also will continue reinvesting securities as they mature.

Labor Market

St. Louis Fed President James Bullard dissented, saying the committee should “signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings.”

Kansas City Fed President Esther George dissented for the fourth meeting in a row, continuing to cite concern that keeping the benchmark interest rate near zero risks creating “economic and financial imbalances,” including asset price bubbles.

No change in policy was expected at today’s meeting. Fifty- eight of 59 economists in a June 4-5 Bloomberg Survey predicted the central bank would maintain the pace of purchases.

Investors are scrutinizing the Fed’s communications for signs the period of unprecedented stimulus is coming to an end as the economy recovers from the longest and deepest recession since the Great Depression.

Inflation is providing little impetus for a tapering in bond purchases. A gauge of consumer prices excluding food and energy that is watched by the Fed rose 1.1% in the year through April, matching the smallest gain since records started in 1960.

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