Fri, Oct 26, 2012 - Page 15 News List

US Federal Reserve sticks to QE3 guns

TARGET:US President Obama has been a supporter of Federal Reserve chief Bernanke, but Republican candidate Romney has criticized Bernanke’s ‘easy money’ policies

AFP, WASHINGTON

The US Federal Reserve confirmed its commitment on Wednesday to the six-week-old QE3 stimulus, saying that the US economy still needed the support of its easy money programs.

In its last meeting before the US presidential election — which, if challenger Mitt Romney wins, could trigger an economic policy shift — the Fed’s rate-setting board chose to make no changes to its monetary stance.

Brushing off some recent signs of stronger expansion, the Federal Open Market Committee (FOMC) said economic growth remained at a “moderate” pace.

It noted a rise in household spending and an improving housing industry, but said growth in business investment had slowed, and that joblessness was still high.

The Fed “remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the FOMC said in a statement after a two-day meeting.

The economy also remains vulnerable to strains in global financial markets, it added.

The FOMC kept its benchmark interest rate locked at between 0 percent and 0.25 percent as expected, and said it expected to keep the rate at a very low level “at least through mid-2015.”

As expected, the Fed said its broad policy to press down interest rates would stay in place “for a considerable time after the economic recovery strengthens.”

The US central bank was referring to its two stimulus programs, QE3 launched last month and the nearly year-old “Operation Twist,” through which it invests US$85 billion each month in bond purchases in an effort to drive down long-term interest rates to simulate investment and hiring.

If the country’s high unemployment situation does not improve “substantially,” the FOMC said it will continue the existing program, add other asset purchase operations and employ other monetary tools to boost the economy.

The FOMC statement made no mention of its ongoing discussion, revealed in the minutes of the early September meeting, over whether it should tie its eventual raising of interest rates to an explicit target level for unemployment.

The meeting came before voters go to the polls on Nov. 6 to choose between President Barack Obama and Mitt Romney as the US leader for the next four years.

Obama has been a supporter of Fed Chariman Ben Bernanke, but Romney has been strongly critical of the “easy money” policies and said he would replace Bernanke if he wins.

However, Bernanke’s term does not expire until 2014, and it is unlikely that a newly elected Romney would seek to force him out earlier.

“After the big changes in September, and the presidential election less than two weeks away, officials were probably happy to make this week’s meeting as much of a non-event for markets as possible,” Jim O’Sullivan of High Frequency Economics said.

“More interesting will be the next FOMC meeting on December 11 and 12. Officials will likely make a decision then on whether QE3 will be extended to include Treasuries purchases when ‘Operation Twist’ ends at year-end. We expect it will be,” he said.

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