Cheap money to go on till unemployment falls
The US Federal Reserve, announcing a new round of monetary stimulus, took the unprecedented step on Wednesday of indicating interest rates would remain near zero until unemployment falls to at least 6.5%.business Updated: Dec 13, 2012 22:25 IST
The US Federal Reserve, announcing a new round of monetary stimulus, took the unprecedented step on Wednesday of indicating interest rates would remain near zero until unemployment falls to at least 6.5%.
It was the latest in a series of unorthodox measures taken by central banks around the world to battle erratic sub-par recoveries from the financial crisis and recession of 2007-2009.
The Fed expects to hold rates steady until its new threshold on unemployment was reached as long as inflation does not threaten to break above 2.5% and inflation expectations are contained. It replaced an expiring stimulus programme with a fresh round of Treasury debt purchases.
"By tying future monetary policy more explicitly to economic conditions this formulation of our policy guidance should ...make monetary policy more transparent and predictable to the public," said Fed chairman Ben Bernanke.
Importantly, in the eyes of Fed officials, the new framework should help financial markets assess incoming data in a way that helps them better guess were monetary policy is heading.
Right now the Fed is engaged in an open-ended programme of asset purchases, which it bolstered on Wednesday.
Officials committed to buy $45 billion in longer-term Treasuries each month on top of the $40 billion per month in mortgage-backed bonds they started purchasing in September. They repeated a pledge to keep pumping money into the economy until the outlook for the labor market improves "substantially."