Fed keeps $85 billion pace of bond buying, sees risks waning

The Federal Reserve will keep buying bonds at a pace of $85 billion a month and said that risks to the economy have decreased.

“The committee sees downside the risks to the outlook for the economy and the labor market as having diminished since the fall,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. It repeated that it’s prepared to increase or reduce the pace of purchases depending on the outlook for the job market and inflation.

Chairman Ben S. Bernanke is expanding the Fed’s balance sheet toward $4 trillion as he seeks to reduce a jobless rate that stands at 7.6% after four years of economic growth. Investor concern that the Fed may soon start to reduce the pace of asset purchases this month pushed 10-year Treasury yields to a 14-month high.

Stocks extended losses after the statement. The Standard & Poor’s 500 Index declined 0.4% at 2:06 p.m. in New York. The yield on the 10-year Treasury note rose to 2.26% from 2.19% late yesterday.

Bernanke, 59, is scheduled to explain the Fed’s actions at a 2:30 p.m. press conference in Washington.

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%.

Mortgage Bonds

The Fed’s 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.

The Fed repeated that it will keep buying assets “until the outlook for the labor market has improved substantially.”

“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.”

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 7.0% in March.

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