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Federal Reserve to Spend $40B a Month on Bond Purchases

The Federal Reserve has lowered its outlook for growth this year but is more optimistic about the next two  years. The change likely reflects a series of bold stimulus measures the Fed launched Thursday aimed at  boosting the sluggish economy.

Ben Bernanke
Mark Wilson, Getty Images

 

The Fed now expects growth to be no stronger than 2 percent this year. That’s down from its forecast of 2.4 percent in June and in line with most private economists’ predictions.

But the Fed expects growth to accelerate next year to as much as 3 percent. That’s up from June’s forecast of as much as 2.8 percent. For 2014, the Fed projected growth between 3 percent and 3.8 percent.

The Fed still thinks unemployment won’t fall below 8 percent this year. The unemployment rate is currently at 8.1 percent. It says the rate fall as low as 7.6 percent next year and down to 6.7 percent in 2014.

It also expects inflation to remain at or below 2 percent for the next three years.

The Fed raised its outlook for 2013 and 2014 after it said it will spend $40 billion a month to buy mortgage bonds for as long as it deems necessary to make home buying more affordable. It also plans to keep short-term interest rates at record lows through mid-2015 — six months longer than previously planned. And it’s ready to take other unconventional steps if job growth doesn’t pick up.

Overall economic growth slowed in the April-June quarter to an annual rate of just 1.7 percent, down from 2 percent in the January- March quarter and 4.1 percent in the final three months of last year.

Many economists expect growth will remain roughly 2 percent in the second half of the year, well short of what is needed to make a significant dent in the unemployment rate.

The U.S. economy is growing too slowly to significantly reduce high unemployment. The unemployment rate has topped 8 percent every month since the Great Recession officially ended more than three years ago.

In August, job growth slowed sharply. Employers added just 96,000 jobs, down from 141,000 in July and well below what is needed to bring relief to the more than 12 million who are unemployed.

The unemployment rate did fall to 8.1 percent from 8.3 percent. But that was because many Americans stopped looking for work, so they were no longer counted as unemployed.

 

(Copyright 2012 by The Associated Press. All Rights Reserved.)

 

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