WASHINGTON-And at the end of June, the Federal Reserve finished its work and rested.The nation's central bank said yesterday that it would complete the planned purchase of $600 billion in Treasury securities next week as scheduled, then pause its three-year-old economic rescue campaign, leaving in place existing aid programmes but doing nothing more, for now, to bolster growth.
At the same time, the Fed said that the economy is expanding less quickly than it had expected. It now projects a growth rate of 2.7 per cent to 2.9 per cent in 2011, and 3.3 per cent to 3.7 per cent in 2012. Both projections are considerably below the Fed's April forecast."We don't have a precise read on why this slower pace of growth is persisting," Ben S Bernanke, the Fed's chairman, said at a press conference yesterday. "Some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, may be stronger and more persistent than we thought."
The Fed's policy board, the Federal Open Market Committee, voted unanimously to maintain its two-year-old commitment to hold a benchmark interest rate near zero "for an extended period."Bernanke said the language means that the Fed will not raise interest rates for "at least two or three meetings," pushing back to November the earliest moment rates could increase. Close watchers of the Fed consider it likely that the central bank will hold interest rates near zero well into next year.
The board also voted to maintain the Federal Reserve's portfolio of more than $2 trillion in Treasuries and mortgage-backed securities by reinvesting any principal payments in new securities. The investments are intended to hold down long-term interest rates, allowing corporations and consumers to borrow money more cheaply. Studies show that the effort has produced only modest benefits.Roughly 25 million Americans cannot find full-time jobs, and employers cut back on hiring in May. The Fed said it now projects that the unemployment rate will stand at 8.6 per cent to 8.9 per cent at the end of 2011, down slightly from the current rate of 9.1 per cent. The Fed projected that unemployment will stand between 7.8 per cent and 8.2 per cent at the end of 2012. (The New York Times)