FOMC: Economic Activity Expanding at 'Moderate Pace'

May 1, 2013 08:32 AM

The Federal Open Market Committee (FOMC) said the economy is expanding at a "moderate" pace," as labor conditions have shown some improvement in recent months, although unemployment remains elevated. The FOMC said it will continue purchasing additional mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. But it said it is prepared to "increase or reduce" the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.

"In determining the size, pace and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives," it states.

Regarding its commitment for accommodative monetary policy, the FOMC said, "To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."

As expected, the FOMC announced it will keep the target range for the federal funds rate at 0% to 0.25% and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored. "In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%," it states.

The measuring was approved by an 11-1 vote. Voting against the action was Esther L. George, who was concerned the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

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