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U.S. Fed maintains program to buy government bonds

12-15-2010 10:15 BJT

WASHINGTON, Dec. 14 (Xinhua) -- The U.S. Federal Reserve announced on Tuesday it would maintain the pace of its 600-billion- dollar Treasury bond-buying program in order to strengthen the economic recovery and tackle the high unemployment challenge.

"The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment," the central bank said in a statement after a policymaking panel meeting.

The Federal Open Market Committee (FOMC), the interest rate policy making body of the central bank, said that it will " continue expanding its holdings of securities as announced in November."

The Fed also decided to maintain the target range for the federal funds rate at the historically low level of zero to 0.25 percent to boost the economic recovery.

On Nov. 3, the Fed announced its plan to buy 600 billion dollars of government longer term bonds to foster maximum employment and price stability.

Based on information received since the FOMC met in November, the Fed said that U.S. household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

Business spending on equipment and software is rising, though less rapidly than earlier in the year. However, investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls.

The Fed noted that the "unemployment rate is elevated and measures of underlying inflation are somewhat low."

Latest government data showed that the U.S. unemployment rate increased to 9.8 percent in November from 9.6 percent in the previous month.

Although the Fed anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been "disappointingly slow."

The central bank repeated that it will maintain its existing policy of reinvesting principal payments from its securities holdings. It will regularly review the pace of its securities purchases and the overall size of the asset-purchase program.

The Fed's decision to keep buying government securities drew one dissent.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

Editor:Du Xiaodan |Source: Xinhua

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