Fed Ties Rate Pledge to a Threshold as New Stimulus Set

(Reuters) – The Federal Reserve, announcing a new round of monetary stimulus, took the unprecedented step on Wednesday of indicating interest rates would remain near zero until unemployment falls to at least 6.5 percent.

It was the latest in a series of unorthodox measures taken by central banks around the world as major economies face erratic, sub-par recoveries from the global financial crisis and recession of 2007-2009.

The Fed said it expects to hold rates steady until its new threshold on unemployment was reached as long as inflation does not threaten to break above 2.5 percent and inflation expectations are contained.

Fed officials, who cut their forecasts for both economic growth and inflation next year, also replaced an expiring stimulus program with a fresh round of Treasury debt purchases.

“The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the Fed’s policy-setting panel said in a statement at the close of a two-day meeting.

Fed officials committed to purchase $45 billion in longer-term Treasuries each month on top of the $40 billion per month in mortgage-backed bonds the U.S. central bank started buying in September. They also repeated a pledge to keep pumping money into the economy until the outlook for the labor market improves “substantially.”

Read more here: http://www.reuters.com/article/2012/12/12/us-usa-fed-idUSBRE8BB08A20121212

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