Fed stands pat but says will act if needed

Wed Apr 25, 2012 4:45pm EDT
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By Pedro Nicolaci da Costa and Mark Felsenthal

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke on Wednesday said U.S. monetary policy is "more or less in the right place" even though the central bank would not hesitate to launch another round of bond purchases if the economy were to weaken.

In a statement after a two-day meeting, the Fed's policy-setting panel reiterated its expectation that interest rates would not rise until late 2014 at the earliest, and it took no action on monetary policy.

The Fed also adjusted its economic forecasts to acknowledge both a labor market that is improving and stronger than expected growth this year. At the same time, officials anticipate that tax hikes and spending cuts could slow growth in 2013 and 2014.

"We remain entirely prepared to take additional balance sheet actions as necessary to achieve our objectives," Bernanke told reporters. "Those tools remained very much on the table and we would not hesitate to use them should the economy require that additional support."

He said the central bank could be spurred into action if the U.S. unemployment rate, which stood at 8.2 percent last month, failed to keep moving lower, but added: "For the time being, it appears that we are more or less in the right place."

In response to the deepest recession in generations, the Fed cut overnight rates to near zero in December 2008 and more than tripled its balance sheet by purchasing $2.3 trillion in government and mortgage bonds in two rounds of so-called quantitative easing.

Fresh projections released by the central bank showed the most dovish officials no longer want to put off a rate increase until 2016, a move analysts said could also suggest there is less of an appetite within the Fed for further easing.

The projections showed seven officials now believe it would be appropriate to raise borrowing costs some time in 2014, up from five in January, while only four wanted to wait longer, down from six. Interest-rate futures showed traders betting the first rate hike would come in March 2014, a month sooner than earlier thought.   Continued...

U.S. Federal Reserve Chairman Ben Bernanke attends the International Monetary and Financial Committee (IMFC) meeting during the spring IMF-World Bank meetings in Washington April 21, 2012. REUTERS/Yuri Gripas