The Federal Reserve said Wednesday that the U.S. economy, though stronger now than in past years, still needs the Fed’s extraordinary support to help lower high unemployment.
Speaking at a news conference, Chairman Ben Bernanke stressed that the Fed won’t ease its aggressive multi-billion dollar stimulus policies until it’s convinced the economic gains can be sustained.
An unemployment rate of 6.5 percent is a “threshold, not a trigger for any rate increase, he said.
“We are seeing improvement,” Bernanke said. “One thing we would need is to see this is not temporary improvement.”
The unemployment rate, at 7.7 percent, remains well above the 5 percent range associated with a healthy economy.
The Fed said in its statement that the job market has improved, consumer spending and business investment have increased, and the housing market has strengthened. But its latest economic forecasts, also released Wednesday, show that the Fed still doesn’t expect unemployment to reach 6.5 percent until 2015.
The Fed also said it would continue buying $85 billion a month in bonds indefinitely, despite concerns that it is pumping so much money into the economy that it could eventually ignite inflation, fuel speculative asset bubbles or destabilize markets once it has to start raising rates or unloading its record $3 trillion investment portfolio.
Obviously, the Fed doesn’t share these concerns.
The Fed statement was approved on an 11-1 vote. Esther George, president of the Kansas City regional Fed bank, dissented for a second straight meeting. She reiterated her concerns that the Fed’s aggressive stimulus could heighten the risk of inflation and financial instability.
When Bernanke gave the Fed’s twice-a-year economic report to Congress in February, he defended the low-interest rate programs. And while he acknowledged the fears of critics, he downplayed them. He struck the same note in a speech to a conference in San Francisco. There, Bernanke said it would be “quite costly” to the U.S. economy if the Fed pulled back too soon.
At their last meeting Jan. 28-29, Fed officials reaffirmed their decision in December to keep spending $85 billion a month on bonds to lower long-term rates until the job market had improved “substantially.”
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The AP contributed to this report. Featured image courtesy Getty Images.