style="color: #222222">The Federal Open Market Committee (FOMC) on Thursday agreed to increase policy accommodation by purchasing additional agency mortgage-backed securities (MBS) at a pace of US$40 billion per month.
Fed policymakers will also continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June.
The FOMC said it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.
"These actions, which together will increase the Committee’s holdings of longer-term securities by about US$85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," the FOMC said in a statement.
The FOMC also said that it will closely monitor incoming information on economic and financial developments in coming months.
If the outlook for the labor market does not improve substantially, the FOMC will continue its purchases of agency MBS, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.
In determining the size, pace, and composition of its asset purchases, the FOMC will, as always, take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Fed policymakers expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.
In particular, the FOMC also decided to keep the target range for the federal funds rate at 0 to 0.25% and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.
Economic activity has continued to expand at a moderate pace in recent months, the FOMC said in its assessment of the world's largest economy. Growth in employment has been slow, and the unemployment rate remains elevated, it added.
"Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level," the FOMC said.
Inflation has been subdued, although the prices of some key commodities have increased recently, the Fed's policy-setting panel said. Longer-term inflation expectations have remained stable.
The FOMC said it seeks to foster maximum employment and price stability. The Fed is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.
Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.
The FOMC said it also anticipates that inflation over the medium term likely would run at or below its 2% objective.
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