Fed Cites 'Pause' in Growth, Stands by Stimulus

BernankeBy MARTIN CRUTSINGER

WASHINGTON (AP) - The Federal Reserve says growth "paused" in recent months and reaffirmed its commitment to boost a sluggish U.S. economy by keeping borrowing cheaply for the foreseeable future.

The Fed took no new action after a two-day policy meeting. But it stood behind aggressive steps it launched in December to try to reduce unemployment, in a statement released Wednesday.

Last month the Fed said it would keep its key short-term interest rate at a record low at least until unemployment falls below 6.5 percent. And it said it would keep buying $85 billion a month in Treasurys and mortgage bonds to try to keep borrowing costs low and encourage spending.

Earlier in the day, the Commerce Department said the economy shrank at an annual rate of 0.1 percent mainly because companies restocked at a slower rate and the government slashed defense spending.

In its statement, the Fed said the slowdown in growth was largely because of weather-related disruptions and other temporary factors. It noted that employment continues to expand at a moderate pace, consumer spending and business investment increased and the housing sector showed further improvement.

The central bank also said strains in global financial markets have eased somewhat, but cautioned that risks remain.

The statement was approved on an 11-1 vote. Esther George, the president of the Federal Reserve Bank of Kansas City, objected. George expressed concerns about the risk of higher inflation caused by the Fed's aggressive policies.

Last month, the Fed signaled for the first time that it will tie its policies to specific economic barometers. It said that as long as the inflation outlook is mild, it could keep short-term rates near zero until unemployment dips below 6.5 percent from the current 7.8 percent.

The Fed also said it would continue its bond purchases until the job market improved "substantially."

When it buys bonds, the Fed increases its investment portfolio and pumps more money into the financial system - something critics say could eventually ignite inflation or create dangerous bubbles in assets like real estate or stocks.

On Friday, the government will release its jobs report for January. The unemployment is expected to remain 7.8 percent. That still-high rate, 3½ years after the Great Recession officially ended, helps explain why the Fed has kept its key short-term rate at a record low near zero since December 2008, just after the financial crisis erupted.

Still, some private economists think the Fed will decide to suspend its bond purchases in the second half of this year. They note that the minutes of the Fed's December meeting revealed a split: Some of the 12 voting members thought the bond purchases would be needed through 2013. Others felt the purchases should be slowed or stopped altogether before year's end.

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nsoccio

Could someone please tell me what the hell unemployment has to do with Interest Rates. People who aren't working aren't looking for loans nor will any lending institution give them one. If Helicopter Ben dosn't get his had out of his ass soon were all going to be doomed.

February 01 2013 at 5:02 PM Report abuse +1 rate up rate down Reply
jrb359

Notice how the mainstream media is only talking about immigration reform and gun control? Why aren't they talking about the$16.5 trillion deficit, the 7.8% unemployment, and the -.01 GDP growth? Could it be that they supported and don't want people to know they voted for a failed Progressive president? Things are only going get worse!

January 31 2013 at 6:37 AM Report abuse +2 rate up rate down Reply
jrb359

Why doesn't everyone see what this administration is really all about? Is anyone really that stupid to believe these people care about Americans? Wake up people, the current economic path is UNSUSTAINABLE and they know it! There NEEDS to be cuts in spending or the dollar will soon be used as as Kleenex. Then what happens to all those that live off the working people by way of the government?

January 31 2013 at 6:00 AM Report abuse +2 rate up rate down Reply
John Perry

Why is the economy pausing???
By this time under Reagan the economy was going gangbusters.
Reagan lowered tax rates and from 1981 when the income to the Treasury was 599.3 Billion dollars income increased to 991.1 Billion Dollars in 1989. That's an increase of 65.8%.
The GDP grew about 3% per quarter during the the Reagan Administration.
Income to the Treasury has been lower every year during obamas reign than in 2008 under Bush.
Why was Reagan so successful in solving his recession.
HE FOLLOWED THE SAME PRINCIPLES JFK and almost every other President used to resolve there recessions.

OBAMA IS DOING THE EXACT OPPOSITE OF EVERY SUCCESSFULL PRESIDENT WHO SOLVED THEIR RECESSIONARY PROBLEMS.
In 4 years obama has added MORE to the debt than any other President.

January 30 2013 at 11:16 PM Report abuse +4 rate up rate down Reply
joeracer_55

Well the feds said it, so it must be true.

January 30 2013 at 10:37 PM Report abuse +1 rate up rate down Reply
caboranches

STOP ALL HIRING N LAY OFF ALL WORKERS N MOVE YOUR COMPANIES OVERSEAS,UNTILL THIS MUSLIM CLOWN IS REMOVED FROM OUR WHITE HOUSE IN HANDCUFFS . !

January 30 2013 at 10:03 PM Report abuse +1 rate up rate down Reply
Thrift Store

AS Long as the welfare party is in the white house you will see jobs dissapear forever

January 30 2013 at 9:18 PM Report abuse +6 rate up rate down Reply
ctowns1024

Keynesianism died back in the 70s but this dead horse is kept on life support, brain dead and kept alive by the printing press. You cannot print your way out of a depression or recession. They more the Feds inflate the money supply and increase the debt the more they will bring on another collapse. They have caused every boom and bust and now we have another wave coming. The Austrian School of Economics has the only valid business cycle theory and everyone ignores them as they want to keep inflating. How are those “animal spirits” treating you Bernanke?

January 30 2013 at 8:03 PM Report abuse rate up rate down Reply
.kowalski440mag

If Bern. does this action for 10 months will that add $850B to the deficit? Will the $850B increase the US money supply(or is the figure just a paper and/or electronic trick)?

January 30 2013 at 7:19 PM Report abuse +1 rate up rate down Reply
jrb359

If I didn't know any better, I think they're trying to say they don't know what they're doing. Progressive way of fixing the economy is an absolute failure. Failed governor Corzine tried the Progressive approach. Only succeeded in driving many companies out of the state.

January 30 2013 at 7:13 PM Report abuse +5 rate up rate down Reply