Federal Reserve officials closed ranks to signal that an improving economy won’t derail their plan to cut unemployment by pumping $600 billion into the financial system.
The pace of recovery is "insufficient to bring about a significant improvement in labour market conditions," the Federal Open Market Committee said yesterday in a statement in Washington that won unanimous support for the first time in 13 months.
Chairman Ben S. Bernanke and his colleagues are strengthening their commitment to the asset purchases as two new members, Philadelphia Fed President Charles Plosser and Dallas Fed chief Richard Fisher, joined the policy-setting panel. Both men, who earlier criticized the program, supported the committee in saying the easing was needed to "promote a stronger pace of economic recovery.”
Plosser and Fisher were among four regional Fed presidents who rotated into voting slots for the year at this week’s meeting. They replaced officials including the Kansas City Fed’s Thomas Hoenig, who favored tighter policy as the lone dissenter in all eight decisions last year.
Stocks and commodities rose yesterday as the dollar fell. The Standard & Poor’s 500 Index gained 0.4% to close at 1,296.63, the highest since August 2008. The S&P GSCI Spot Index of 24 commodities rose 1.9%. The dollar fell 0.3% against a basket of six major currencies in New York trading yesterday.
The Fed left its benchmark interest rate in a range of zero to 0.25%, where it’s been since December 2008, and retained a pledge in place since March 2009 to keep it "exceptionally low" for an "extended period."
Employers added 103,000 workers to payrolls in December, fewer than forecast by economists. The unemployment rate fell to 9.4% from 9.8% as many people dropped out of the labour force.
Central bank officials downplayed increases in food and fuel costs, saying that "although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward."
The inflation gauge watched by the Fed, which excludes food and energy costs, showed a 0.8% increase in the 12 months through November. Central bank officials prefer that the inflation rate range from 1.6% to 2%. Prices of food, metals and petroleum-related products have increased, with the national average price of gasoline rising 15% in the past year to $3.11 U.S. a gallon.
Critics including Stanford University Professor John Taylor have said the bond purchases risk sparking too much inflation. Republican politicians including House Speaker John Boehner, as well as Chinese, German and Brazilian government officials, have said the policy may undermine the dollar.
Bernanke "has made it very clear that we would need a substantial improvement from where we are to justify a shift in policy," she said. He "has clearly regained control of messaging, at least for now."
The Fed has acquired $261 billion U.S. of Treasuries since it started carrying out the second round of so-called quantitative easing on Nov. 12. That includes securities bought by reinvesting proceeds from payments on the mortgage debt bought during the first round of easing, which ran from December 2008 to March 2010 and resulted in $1.7 trillion U.S. of purchases.
Stocks have rallied since Nov. 3, when the Fed announced the policy, and inflation expectations have climbed. The five-year breakeven rate between nominal and inflation-indexed bonds rose to 1.89 percent yesterday from 1.47% on Nov. 3.
Housing is showing some life. U.S. previously owned homes were sold in December at the quickest rate in seven months as buyers tried to lock in low mortgage rates, and new-home sales rose more than economists forecast. Housing starts and home prices haven’t shown similar gains, and in their statement yesterday, Fed officials said housing "continues to be depressed."
Related Stories
