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The U.S. Federal Reserve on Wednesday announced that it will keep the short-term interest rate near zero and continue its controversial assets purchase program to bolster economic growth and job creation until the economic outlook improves substantially.
U.S. economic growth expanded at a "moderate" pace following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains high, 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 strengthened further, but fiscal policy has become somewhat more restrictive," said the Fed.
To support a stronger economic recovery, the FOMC decided to continue purchasing additional agency mortgage-backed securities (MBS) at a pace of 40 billion dollars per month and longer-term Treasury securities at a pace of 45 billion dollars per month, a move to expand its third-round quantitative easing program to lower long-term interest rates, also known as the QE3.
U.S. Federal Reserve Chairman Ben Bernanke holds a news conference following a Federal Open Market Committee (FOMC) meeting in Washington D.C. on March 20, 2013. (Xinhua/Wang Yiou)
These steps will provide "meaningful" support to U.S. economic growth and job creation. Against the background of the high unemployment rate and tamed inflation pressure, the central bank will continue to use monetary easing policy to boost economic growth, U.S. Federal Reserve Chairman Ben Bernanke said at a press conference after the meeting.
"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," noted the statement.
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.
Esther George, president of the Federal Reserve Bank of Kansas City, voted against the Fed's latest monetary policy decision, as she was concerned that the continued high level of monetary easing increased the risks of future economic and financial instability and could push up inflation pressure.
The Fed will continue to evaluate the costs, benefits and efficacy of the asset purchase program, Bernanke stressed.
The Fed also decided to keep the target range for the federal funds rate at zero to 0.25 percent. The U.S. central bank has kept its federal funds rate at this historically low range since the end of 2008 to keep short-term borrowing costs low.
Fed's top policymakers on Wednesday lowered their projection of U.S. economic growth rate this year. They forecast U.S. economy to expand between 2.3 percent and 2.8 percent this year, slightly down from the range between 2.3 percent and 3.0 percent given in December.
U.S. economic growth rate was upwardly revised to an annual rate of 0.1 percent in the fourth quarter of 2012 from the previous estimate of a 0.1-percent decline. The nation's unemployment rate dropped to a four-year low of 7.7 percent in February, U.S. government figures showed.
On the international front, Bernanke said the Fed will continue monitoring the Cyprus situation, but Cyprus is not a major risk to U.S. economy despite many uncertainties and difficulties facing Cyprus.
A parliament vote earlier this week in Cyprus threw an international bailout program in disarray and rattled global financial markets, as the provision of one-off levy on bank deposits in the bailout plan sparked worries over bank runs in the eastern Mediterranean island.
