The US Federal Reserve said on Wednesday the economy continues to recover but is still in need of support, offering no indication that a reduction in the pace of its bond-buying stimulus program is imminent. For now, the Fed will keep on buying $85 billion in mortgage and Treasury securities per month in its ongoing effort to bolster an economy still challenged by federal budget-tightening and weak growth overseas.
Policymakers described economic activity as having expanded at a "modest" pace in the first half of the year, having called the recovery "moderate" in June. In other changes to the policy statement, the Fed signalled concern about higher mortgage rates and flagged the risks of inflation falling too far below its target.
"The Committee recognises that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term," the Fed said. That pledge was enough to prevent St. Louis Fed President James Bullard, who last month expressed concern about falling price pressures, from dissenting for a second time. Esther George of the Kansas City Fed once again voted against the decision due to concerns about potential harm to financial stability from the central bank's prolonged policy of low rates.
The Fed cut interest rates to almost zero in late 2008 and has since more than tripled the size of its balance sheet to around $3.6 trillion via three massive rounds of bond buying aimed at holding down longer-term borrowing costs. At a news conference on June 19, Fed Chairman Ben Bernanke said the central bank likely would start to curtail its current bond-buying round later this year, with an eye toward bringing it to a close by the middle of 2014.
Officials expect the US economy will soon pull out of a soft patch induced by belt-tightening in Washington. A government report on Wednesday showed GDP expanded at a faster-than-expected 1.7 percent annual rate in the second quarter, but the growth figure for the first quarter was revised down to 1.1 percent from 1.8 percent. Further, the report showed consumer prices held steady in the quarter, with so-called core prices advancing at a 0.8 percent pace, well below the Fed's 2 percent target. The Fed has gone out of its way to stress that any pull-back of purchases did not mean the central bank was getting anywhere near jacking up interest rates.
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