Fed: Bond purchasing still vital for economy

WASHINGTON - The economy isn't growing fast enough to lower unemployment and still needs help from the Federal Reserve's $600 billion Treasury bond-purchase program.

That was the assessment Wednesday of Fed policymakers as they ended their first meeting of the year. The Fed made no changes to the program, and the decision was unanimous.

The decision came from a new lineup of voting members that includes two officials who have criticized the bond purchases. They have said the purchases could eventually ignite inflation or speculative buying in assets like stocks.


The bond-buying program is intended to lower rates on loans and boost stock prices, spurring more spending and invigorating the economy. Chairman Ben Bernanke faces the challenge of trying to boost hiring and growth without creating new economic threats.

The tax-cut package that took effect this month is easing pressure on the Fed to stimulate growth through its bond purchases.

The measure renewed income-tax cuts and cut workers' Social Security taxes, boosting their take-home pay.

Fed policymakers seemed to downplay recent improvements in the economy.

Instead, the Fed noted that the economy continues to faces risks. The biggest: that high unemployment will dampen consumer spending, which accounts for 70 percent of national economic activity.

Fed policymakers observed that the "economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor-market conditions."

One of the Fed's main reasons for launching the bond-buying program was to lower high unemployment, now at 9.4 percent.

The prospect that inflation will remain tame gives the Fed leeway to stick with its program, announced Nov. 3, to buy $600 billion worth of Treasury debt by the end of June.

by Jeannine Aversa Associated Press Jan. 27, 2011 12:00 AM





Fed: Bond purchasing still vital for economy