VOL. 126 | NO. 18 | Thursday, January 27, 2011
Fed Says Economy Needs $600B Bond-Purchase Program
JEANNINE AVERSA | AP Economics Writer
WASHINGTON (AP) – The Federal Reserve said Wednesday that the economy isn't growing fast enough to lower unemployment and must press ahead with its $600 billion Treasury bond-purchase program.
Ending its first meeting of the year, the Fed made no changes to the program. The decision was unanimous.
The decision came from a new lineup of voting members that includes two officials who have criticized the bond purchases. They have said the purchases could eventually ignite inflation or speculative buying in assets like stocks.
The bond-buying program is intended to lower rates on loans and boost stock prices, spurring more spending and invigorating the economy. Chairman Ben Bernanke faces the challenge of trying to boost hiring and growth without creating new economic threats.
The tax-cut package that took effect this month is easing pressure on the Fed to stimulate growth through its bond purchases. The measure renewed income-tax cuts and cut workers' Social Security taxes, boosting their take-home pay.
The Fed's assessment of the economy was nearly identical to its last meeting in December. Fed policymakers seemed to downplay recent improvements in the economy including stronger spending by consumers and more production at factories.
Instead, the Fed noted that the economy continues to faces risks. The biggest: that high unemployment will damp consumer spending, which accounts for 70 percent of national economic activity.
Fed policymakers observed that the "economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions."
One of the Fed's main reasons for launching the bond-buying program was to lower high unemployment, now at 9.4 percent.
The Fed noted a recent increase in the prices of commodities, such as oil and gasoline, but said it isn't likely to spark high inflation. The prospect that inflation will remain tame gives the Fed leeway to stick with its program, announced Nov. 3, to buy $600 billion worth of Treasury debt by the end of June.
The Fed also kept a pledge to hold a key interest rate at a record low near zero for an "extended period." The Fed has kept rates at ultra-low levels since December 2008 to try to encourage people and businesses to spend more.
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