The Federal Reserve said Tuesday it will maintain the pace of its $600 billion Treasury bond-buying program because a slowly improving economy is still too weak to bring down high unemployment.
Fed policymakers said they’ll continue to monitor the bond-buying program. They left open the option of buying more bonds if the economy weakens, or less if it strengthens more than expected. The bond purchases are intended to lower long-term interest rates, lift stock prices and encourage higher spending.
Critics contend that the program would do little to help the economy and could hurt it by unleashing inflation and speculative buying in assets like stocks.
But the Fed, in its statement, said it sees no threat of inflation. At Tuesday’s meeting, the Fed once again left its key short-term interest rate near zero, where it has been since December 2008. It also repeated its pledge to hold rates at those ultralow levels for an “extended period.”
A broad tax-cut plan emerging in Congress is easing pressure on the Fed to stimulate growth through its bond purchases.
In deciding to stay the course, the Fed said the “economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment.”
Other than spotlighting the high unemployment rate, the Fed’s statement was essentially the same as the one issued after policymakers adopted the bond-buying program at their Nov. 3 meeting.
The statement had little impact on investors, who were more focused on encouraging economic news Tuesday that showed the fifth straight month for retail sales gains. Stocks maintained their gains, but were little changed after the Fed’s statement was released.
Unemployment rose to 9.8 percent in November, a seven-month high. It has exceeded 9 percent for a record stretch of 19 months. And some economists predict it could climb to 10 percent by early next year.
Concerns about persistently high unemployment was the main motivation behind the Fed’s decision to launch a second round of economic stimulus last month with the launch of the bond-buying program.
Progress on its goal of reducing unemployment has been “disappointingly slow,” the Fed said Tuesday, echoing language it used last month.
Looking at other parts of the economy, the Fed noted that consumer spending is increasing at a moderate pace, but still remains constrained by high unemployment, scant income gains, weak home values and hard-to-get credit.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, dissented on Tuesday for an eighth straight meeting.
All year, Mr. Hoenig voted against the Fed’s actions to shore up the economy — from holding rates at record lows near zero to the $600 billion bond-purchase program. Mr. Hoenig doesn’t think the economy needs the extra help. He worried that the Fed’s actions will trigger inflation and a wave of speculation in financial markets.
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