27 January 2011US Federal Reserve unanimous on need for continued stimulus
WASHINGTON: US Federal Reserve policymakers unanimously agreed to keep crisis measures in place when they met on Wednesday, batting away fears their policies risked stoking inflation.
A revamped Federal Open Market Committee - the Fed's interest-rate setting panel - ended a two-day meeting with a pledge to continue a $600-billion stimulus plan designed to jolt the US economy out of its slumber.
Despite signs of a "continuing" recovery, the Fed kept its foot on the accelerator, continuing emergency bond purchases that prime the economy and keeping interest rates at the ultra-low rate of zero to 0.25 percent.
"The economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labour market conditions," members said in a statement.
Since the last Fed policy meeting in December, unemployment has dropped to 9.4 percent and most economists see a diminishing risk of a downward spiral of wages and prices.
The brighter economic picture has given voice to the central bank's detractors, who argue it must ready itself for a return to more sustainable policies or else risk stoking inflation.
But the Fed brushed aside those criticisms, saying price increases for some items were not representative of a larger trend.
"Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward."
The statement was given extra weight by the absence of dissent, particularly from two new members of the panel who had voiced concerns about the Fed's policies before joining its top policy panel.
Josh Feinman, global chief economist for DB Advisors - a part of Deutsche Bank - said the statement showed the Fed is sticking to its guns despite the risks.
"Nothing in there would suggest that they have changed their basic view, which is that the recovery is proceeding, but that unemployment is too high, inflation is too low and it is going to take too long to get them back to where they want them to be."
But the statement contained few clues about what actions the Fed may take after the current bond purchasing program expires at the end of June.
"They are leaving that open, it is going to be dictated very much by what happens in the economy between now and then," said Feinman.
"They want to give themselves the flexibility to respond."
A crunch decision to extend purchases or scale them back would raise the possibility of members dissenting from Fed chairman Ben Bernanke's loose monetary policy gambit.
"I think later in the year there is the potential, if the recovery does strengthen... then it may become a little bit more contentious," Feinman said.
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