Fed makes new rate pledge

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Fed makes new rate pledge

Fed makes new rate pledge
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The Federal Reserve is significantly boosting its stimulus programme for the US economy and has taken the unprecedented step of saying it will keep interest rates near zero until the jobless rate falls to 6.5 percent, and as long as inflation is contained.

That is well below its current level of 7.7 percent of the workforce.

In the statement after their monthly meeting, Fed Chairman Ben Bernanke and his colleagues highlighted their disappointment with the pace of recovery in the jobs market.

People without work, or who are worried about losing their jobs, are less likely to spend, depressing the economy.

The promise to pump more money into the economy is based on purchasing $45 billion dollars worth of government bonds each month.

That’s in addition to the $40 billion per month of mortgage-backed bonds the US central bank started buying in September.

In essence the Fed will pump $85 billion of newly printed money into the US economy each month.

Despite all the Fed’s best efforts US economic growth remains tepid.

The drop in the jobless rate to 7.7 percent in November from 7.9 percent in October was driven by workers exiting the labour force, and therefore did not come close to satisfying the Fed’s condition.

The central bank also said its commitment to hold rates steady until its new unemployment threshold was reached would hold as long as inflation was projected to be no more than 2.5 percent one or two years ahead and inflation expectations were contained.