THE US Federal Reserve said last night that the economic recovery was still too slow to bring down unemployment, reaffirming its commitment to purchase $600 billion in bonds to stimulate growth and create jobs.
In a statement that contained little acknowledgment of a recent uptick in the economic data but focused squarely on high unemployment, the Fed characterised the US expansion as “continuing”, a modest upgrade from its November description of the recovery as “slow”.
While the meeting likely involved some re-evaluation of the economic outlook to account for the effects of a proposed extension of tax cuts, the Fed noted measures of underlying inflation had continued to trend lower since its last meeting.
“The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment,” the Fed said in a statement at the conclusion of a one-day meeting.
Kansas City Fed president Thomas Hoenig again dissented against the move.
The Fed’s steady emphasis on economic weakness surprised some analysts, who expected clearer acknowledgment of recent signs the recovery had gained momentum.
“Fed continues to say that the outlook for employment and spending isn’t as strong as the market perceives it,” said Andrew Wilkinson, a senior market analyst for Interactive Brokers in Greenwich, Connecticut.
The US dollar fell against major currencies and treasuries extended losses on the announcement, which suggest the Fed has little inclination to waver from its bond-buying programme. Stocks were little changed.
Early last month, the Fed launched a controversial programme to buy $600 billion in longer-term treasury securities by the middle of next year to support a weak economic recovery that was failing to generate jobs.
The QE2 (second round of quantitative easing) initiative was assailed by critics concerned it could trigger inflation or set off a round of competitive currency devaluations by weakening the dollar.
Since the central bank launched the programme, data on the economy has turned brighter.
Strong November retail sales data earlier yesterday added to evidence the US recovery is gaining strength. – (Reuters)
