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Fed stays easy-money course

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(Globalpost/GlobalPost)

The Federal Reserve held its easy-money policies in place Wednesday in the face of a moderately growing economy facing headwinds from the government's severe "sequester" spending cuts.

The policy-setting Federal Open Market Committee, as widely expected, kept the central bank's key interest rate at zero to 0.25 percent and its $85 billion a month bond-buying program in place in a bid to support economic growth.

"Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace... but fiscal policy is restraining economic growth," the policy makers said in a statement at the conclusion of a two-day meeting.

That language was much stronger than the March FOMC statement, which simply noted that fiscal policy had become "somewhat more restrictive."

The FOMC said it continued to see downside risks to the economic outlook and was prepared to even step up the bond purchases, known as quantitative easing, if conditions worsened.

"The Committee 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," the statement said.

Labor market showed "some improvement" in recent months, but the unemployment rate remains "elevated," at 7.6 percent well above the Fed's preferred 6.5 percent benchmark for winding down the accommodative policy.

Household spending and business fixed investment has climbed and the recovering housing sector had further strengthened, it said.

The Fed policy makers reiterated that inflation was not a significant concern, saying it was running "somewhat below" the FOMC's 2.0 percent objective.

It said it expected inflation over the medium term would run "at or below" the 2.0 percent benchmark.

"When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2.0 percent."

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http://www.globalpost.com/dispatch/news/afp/130501/fed-stays-easy-money-course-1