Economy is on ‘firmer footing,’ but Fed will keep buying bonds
Federal Reserve policymakers said Tuesday that the economy appeared to be “on firmer footing” than at their last meeting in late January, but they nonetheless pledged to stick with their program of buying Treasury bonds to underpin growth.
The Fed’s post-meeting statement was more upbeat than the January statement, while reiterating that the central bank expected to keep its benchmark short-term interest rate at “exceptionally low levels … for an extended period.”
“Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Fed said. “Household spending and business investment in equipment and software continue to expand.”
But the statement also cited the “depressed” housing market and “elevated” unemployment.
The Fed didn’t mention the situation in Japan since the magnitude 9 earthquake or the risk that it might pose to the global economy.
It did acknowledge that “commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks.”
Although rising commodity costs “are currently putting upward pressure on inflation,” the Fed said, it believed that the effects would be temporary.
On Tuesday commodity prices plummeted across the board amid the global market sell-off.
Fed Chairman Ben S. Bernanke has maintained that the central bank has room to help stimulate the economy as long as underlying inflation remains low. The Fed traditionally has focused on so-called core inflation, meaning prices other than for food and energy — although that has irritated many average Americans faced with steep jumps in grocery and gasoline costs.
The Fed in November committed $600 billion for purchases of Treasury securities through midyear, an attempt to suppress longer-term interest rates. In Tuesday’s statement, the Fed said it intended to complete the program on schedule, by the end of June.
There had been speculation that the Fed might say it would stretch out its purchases into the summer. But the Fed has gotten help in pulling interest rates down: Treasury yields have fallen sharply in recent weeks, reflecting a “flight to safety” by investors frightened by the turmoil in the Middle East and by Japan’s massive earthquake and tsunami.
