Arab Today, arab today fed sets inflation jobless targets for hiking rates
Last Updated : GMT 06:26:02
Arab Today, arab today
Arab Today, arab today

Fed sets inflation, jobless targets for hiking rates

Arab Today, arab today

Arab Today, arab today Fed sets inflation, jobless targets for hiking rates

Washington - AFP

The US Federal Reserve laid out target levels on unemployment and inflation for raising interest rates for the first time Wednesday, surprising analysts who expected such a move would wait until next year. In an effort to better signal its policy path, after its benchmark rate has been locked at 0-0.25 percent for four years, the Fed said it would not lift rates as long as the inflation outlook was below 2.5 percent and the jobless rate, now at 7.7 percent, stays above 6.5 percent. Saying the economy continues to grow only at a \"moderate\" rate, the Federal Open Market Committee also launched a new, open-ended $45 billion a month bond-buying program to replace the bond-swap Operation Twist program that expires at year-end. That will take its total \"quantitative easing\" asset purchases, of both Treasury bonds and mortgage-backed securities, aimed at pushing down long-term rates to encourage investment, to $85 billion a month. After a two-day policy meeting, Fed Chairman Ben Bernanke stressed that the economy, while growing at a moderate pace, was still hindered by high unemployment, which he called \"an enormous waste of human and economic potential.\" He also warned that Congress and the White House needed to urgently find a solution to the fiscal cliff crisis, which could send the economy back into recession next year. \"Even though we have not even reached the point of the fiscal cliff potentially kicking in, it\'s already affecting business investment and hiring decisions by creating uncertainty or creating pessimism,\" Bernanke said at a post-meeting news conference. Even with the new target thresholds, the FOMC essentially held close to its course of the past year, stressing that its current \"highly accommodative\" monetary policy will stay in place even after the economy starts turning up. Its benchmark interest rate would hold at the current level \"at least as long as the unemployment rate remains above 6.5 percent\" and inflation over the horizon of one to two years is projected at lower than 2.5 percent. Such a stipulation was far more explicit than previous Fed guidance, which forecast that its easy-money policy would be in place \"at least through mid-2015.\" With prospects low for a rebound in inflation, it also further enshrined combatting unemployment as the primary focus of Fed policy for the next two or three years. Jim O\'Sullivan of High Frequency Economics said the change in the forecasting language suggested that FOMC members see the economy possibly improving over the next couple years more firmly than they had previously forecast. \"The signal is similar but is more clearly conditional,\" O\'Sullivan said. \"As we have been writing, we see risks tilted toward a more rapid-than-expected decline in unemployment continuing.\" But Federal Reserve Chairman Ben Bernanke stressed that the FOMC was not signaling greater optimism. Tying future monetary policy moves to specific conditions will make policy more transparent and predictable, he told journalists. \"The change in the form of the committee\'s forward guidance does not in itself imply any change in the committee\'s expectations of the likely future path of the federal funds rate since the October meeting,\" he said. Indeed, the FOMC cut very slightly its growth forecast for next year to 2.3-3.0 percent, from around 1.8 percent this year. And the survey of FOMC participants showed only five of 19 saw monetary policy tightening by 2014, the same as the October meeting. Markets liked the news for only a short time, shooting up before falling back to around break-even level at the close. The dollar suffered, though, falling to $1.3065 against the euro.

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