Fed Implements More Easing, Sets Unemployment Target
NEW YORK (TheStreet) -- The Federal Reserve said Wednesday it would purchase longer-term Treasury bonds and attached a specific unemployment rate target to end the current federal funds rate.
The Federal Open Market Committee -- the policy-making arm of the central bank -- said it would begin to purchase $45 billion of longer-term Treasury bonds per month for an open-ended period, and that it would keep rates low at least for as long as the U.S. unemployment rate remained above 6.5%.
Many economists had anticipated the Fed would implement some sort of additional purchases to replace the expiring Operation Twist program.
The Fed also announced that it would be open to inflation ticking above its 2% target.
The central bank's decision to tie policy to the unemployment rate is unprecedented.
A majority of the members voted in favor of the action, except for Jeffrey Lacker, who "opposed the asset purchase program and the characterization of the conditions under which an exceptionally low range for the federal funds rate will be appropriate," according to the statement. Lacker often has voted against more accommodative monetary policy.
Below is the full text of the FOMC statement:
Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.