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U.S. Federal Reserve said Wednesday it will continue the current monetary stimulus moves to bolster the slow economic growth and job creation, as the latest data showed that U.S. economy grew at a sub-par 1.7 percent in the second quarter.
U.S. economic activity expanded at a "modest pace" during the first half of the year. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated, the Fed said in a statement after wrapping up its two-day policy meeting of the Federal Open Market Committee (FOMC), the Fed's powerful interest rate setting panel.
"Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth," noted the statement.
U.S. real gross domestic product (GDP) increased at an annual rate of 1.7 percent in the second quarter this year boosted by personal consumption expenditures and nonresidential fixed investment, the Commerce Department announced Wednesday in a report.
The result was a welcome acceleration from the downwardly revised 1.1 percent economic growth pace in the first quarter, but still anemic compared with the average rate in the past eight decades. Between 1929 and 2012, the average annual growth rate was 3.3 percent, 0.1 percentage point higher than in previously published estimates, said the department.
Real personal consumption expenditures increased 1.8 percent in the second quarter. Real nonresidential fixed investment increased 4.6 percent in the second quarter. Real federal government consumption expenditures and gross investment decreased 1.5 percent in the second quarter, the report showed.
"The fact that declining federal spending continues to be a drag on economic growth is another reminder that now is not the time for Washington to impose self-inflicted wounds on the economy, " Alan Krueger, Chairman of the White House Council of Economic Advisers, said Wednesday in a blog article.
U.S. President Barack Obama Wednesday went to Congress to discuss with Democratic lawmakers on economic growth, strengthening the middle class and other topics prior to the August congressional recess.
To support a stronger economic recovery, U.S. central bank decided to continue purchasing additional agency mortgage-backed securities (MBS) at a pace of 40 billion U.S. dollars per month and longer-term Treasury securities at a pace of 45 billion dollars each month, a move to expand its third-round quantitative easing program to lower long-term interest rates, also known as the QE3.
The Fed is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.
"Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," said the central bank.
The Fed also decided to keep the target range for the federal funds rate at zero to 0.25 percent. The Fed has kept its federal funds rate at this historically low range since the end of 2008 to keep short-term borrowing costs low.
Since the onset of the financial crisis, the Fed has completed two rounds of quantitative easing programs, dubbed as QE1 and QE2. It has bought more than 2 trillion dollars of U.S. government debt, agency MBS and other assets. These programs have attracted sharp criticism both at home and abroad.
