Fed Digs Deeper to Lower Unemployment

In another bold move, the Federal Reserve will spend $85 billion a month to buy bonds and keep interest rates near zero until the US jobless rate falls below 6.5 percent, according to a statement following the Fed's final meeting of the year.

Published

over 1 year ago

Categories

US, Finance

Topics

Job Market, US Politics, United States

People

Ben Bernanke

Places

United States of America

Tags

federal reserve

Transcript

Federal Reserve Chairman Ben Bernanke is worried about the economy, specifically high unemployment. He's digging in the Fed's pockets to spend $85 billion a month to buy government and mortgage debt. All this buying will keep-on until the jobless rate falls below 6-1/2 percent. SOUNDBITE: FEDERAL RESERVE CHAIRMAN BEN BERNANKE (ENGLISH) SAYING: "We expect to continue asset purchases until we see a substantial improvement in the outlook for the labor market in a context of price stability. In assessing the extent of progress, the committee will be evaluating a range of labor market indicators including the unemployment rate, payroll employment, hours worked, and labor force participation among others. Because increase in demand and production are normally precursors to improvement in labor market conditions, we'll also be looking carefully at the pace of economic activity more broadly." Price stability for the Fed means an inflation rate no hotter than 2-1/2 percent. This is the first time the Fed has been so clear in signaling a trigger for policy response. And while transparency may be a good thing, it can also be a hazard. A drop in unemployment could mask underlying weakness in the economy, when it comes and the "when" could also be a risk, warns Brian Jacobsen of Wells Fargo Advantage Funds. SOUNDBITE: BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO ADVANTAGE FUNDS (ENGLISH): "The unemployment rate can change rather quickly, so right now we are at 7.7 percent, I think that we could actually get to 6.5 percent probably by the middle of 2014, which is actually a full year before the Fed thinks we can get there." But guideposts aside, the Fed still thinks the economy is weak enough to warrant near-zero interest rates for the foreseeable future. SOUNDBITE: BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO ADVANTAGE FUNDS (ENGLISH): "They are attempting to do everything they can, which might not be much, but think about what has happened in terms of the automotive industry, a lot of automobile purchases are financed on credit and really if you look at the cost of credit, the cost of financing is very low and the Fed had played a rather important part for the comeback of the auto industry and they are trying to do the same thing now for the housing industry." And with Bernanke admitting there's not much he can do if the economy goes over the fiscal cliff, he's trying to do what he can, as that fiscal cliff casts a darker shadow on the economy.