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The U.S. Federal Reserve on Wednesday pledged to keep its stimulus policy in place, as a mixed bag of economic data released recently have fueled fears of a slowdown in tentative growth.
In a highly-scrutinized statement following its two-day policy meeting, the Fed said it will hold its 85-billion-dollar monthly bond-buying program steady and signaled to adjust the rate of asset purchases in accordance with changing economic situation.
Economic activity is expanding at a "moderate" pace recently, and there is "some improvement" in the labor market, said the Fed, noting that unemployment rate remains grim.
It mentioned further strengthening of the housing sector, but cautioned that fiscal policy is holding back economic growth. Inflation has been running "somewhat below" the target, and long-term inflation expectations have remained stable, the Fed added.
The central bank said it continues to see "downside risks" to the economic outlook and would keep expanding its balance sheet by purchase of treasury and mortgage-backed securities, known as quantitative easing, until the outlook for the labor market improves substantially.
The Fed reiterated its pledge to keep the short-term interest rates to a range at or near zero as long as the unemployment rate remains above 6.5 percent and inflation is projected to stay below 2.5 percent.
In a move to maintain policy flexibility, the Fed said it would closely monitor incoming information and is prepared to "increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes."
Since the onset of the financial crisis, the Fed has completed two rounds of quantitative easing programs, dubbed as QE1 and QE2, which are followed by a third round announced last September.
It expanded the bond-buying program with additional monthly buying of 45 billion dollars treasury bonds in December 2012. The Fed's balance sheet has ballooned to about 3.2 trillion dollars.
As the economy showed more signs of improvement in recent months, the Fed has begun discussing the timing of scaling back the quantitative easing.
At a previous policy meeting, the Fed officials mulled measures tapering the monetary stimulus. Some members of the Fed policy-setting committee favored winding down the bond buying around the mid-year, with the program ending later in 2013.
However, the below-target inflation and disappointing economic data released recently have provided the Fed with more reasons to continue putting its foot on the accelerator.
The Fed's favored gauge of inflation - the personal consumption expenditures prices - were up only 1 percent year on year in March, the slightest increase since late 2009, according to a report from the U.S. Commerce Department. The Fed had made it clear that it wanted to keep the inflation level at around 2 percent.
Hiring slowed dramatically in March, and the economy expanded at an annual rate of 2.5 percent in the first quarter, falling short of the market expectation. The manufacturing sector grew more slowly in April, losing steam for the second consecutive month.
The grim economic data fueled fears of a slowdown through spring and summer for another year as the adverse effects of the massive government spending cuts, known as the sequester, gradually appeared.
David Stockton, a senior fellow at the Peterson Institute for International Economics, said weakness showed in the economy and the very low rates of inflation are likely to "forestall any tapering of the Fed's asset purchasing program at least until the fall."
"Given this economic environment, the Fed will stay easier for longer than many currently anticipate," he added
