Fed - no new policies but hints at future action

WASHINGTON (Xinhua):The U.S. Federal Reserve said Tuesday that it has decided to keep its existing monetary policies to boost recovery but is prepared to take further steps in the future in case of worsened economic conditions.

“The economy has been expanding moderately,” the central bank said in a statement released after the meeting of the Federal Open Market Committee (FOMC), its interest rate policy making body, citing “improvement in overall labour market conditions” and advance in household spending.

Based on information collected since FOMC’s last meeting in November, “inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable,” said the Fed. However, business fixed investment increased less rapidly and the “housing sector remains depressed,” it said.

To support a stronger economic recovery and to help ensure that inflation remain stable, the central bank decided to continue its existing policies to help the economy, including its program to extend the average maturity of its holdings of securities as announced in September, and reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities as well as rolling over maturing Treasury securities at auction.

The Committee also decided to keep the federal funds rate at historic low level of zero to 0.25 percent at least through mid- 2013.

The Fed’s decision to keep its current policies is in line with economists’ expectation. However, they believe that the central bank will launch some new measures next year as the presidential election is approaching.

The Fed left open the possibility of taking new steps next year if the economy worsens, noting that the global economic growth has slowed due to the debt crisis in Europe.

“The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability,” the Fed added.

President Barack Obama said recently that the European debt crisis posed a key threat to the economic recovery in the United States.

According to recent Fed projections, the U.S. economy is expected to grow by 1.6 to 1.7 percent in 2011 and 2.5 percent to 2.9 percent next year.