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March 21, 2013

Reserve says it will stick with stimulus

By Martin Crutsinger Associated Press

WASHINGTON — The Federal Reserve on Wednesday stood by its efforts to keep borrowing costs at record lows, saying it isn’t yet convinced that the U.S. economy’s growth can accelerate without significant help from the central bank.

It wants to see sustained improvement.

Fed officials reinforced their plan to keep short-term interest rates at rock-bottom levels at least until unemployment falls to 6.5 percent.

An unemployment rate of 6.5 percent is a threshold, not a “trigger,” for a possible rate increase, Chairman Ben Bernanke said.

“We are seeing improvement,” he said. “One thing we would need is to see this is not temporary improvement.”

The Fed will continue buying $85 billion a month in bonds indefinitely to keep long-term borrowing costs down. Bernanke said the Fed might vary the size of its monthly purchases depending on whether the job market improves and by how much.

The unemployment rate has fallen to a four-year low of 7.7 percent, among many signs of a healthier economy.

Investors seemed pleased with the Fed’s decision to maintain its low-rate policies for now. The Dow Jones industrial average closed up about 56 points, having risen slightly after the Fed’s statement was released.

The Fed’s statement took note of the global stresses that have been intensified by turmoil in Cyprus, which is trying to stave off financial ruin. No longer does the Fed statement say, as it did in January, that “strains in global financial markets have eased somewhat.”

Bernanke was asked at a news conference whether the flare-up in Cyprus signals that the U.S. financial system might be more vulnerable than bank “stress tests” have shown. He sought to downplay the dangers posed by the tiny Mediterranean nation.

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