Fed specifies terms of lending rate

Dec. 12, 2012 at 6:47 PM
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WASHINGTON, Dec. 12 (UPI) -- The U.S. Federal Reserve said Wednesday it would hold its key interest rate in place until the national unemployment rate dropped to 6.5 percent.

The Fed said it would consider other economic data in making its decision. The overnight bank-to-bank lending rate has been set at zero to 0.25 percent since the recession, which officially ended in June 2009.

"If we could wave a magic wand and get unemployment down to 5 percent tomorrow, obviously we would do that. But there are constraints in terms of the dynamics of the economy, in terms of the power of these tools and in terms that we do need to take into account other costs and risks that might be associated with a large expansion of our balance sheet," said Fed Chairman Ben Bernanke at a news conference. The New York Times reported.

The Fed's gambit, while leaving the rock-bottom rate unchanged, was to change its terminology and disclose what has always in the past been seen as a trade secret: An actual benchmark that businesses and investors can see so they can plan their decisions accordingly.

"To support continued progress toward maximum employment and price stability, the (Open Market) Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens," the central bank said in a statement.

"In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent."

On balance, the Fed said inflation is expected to remain "no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored."

The Fed said it would keep its asset buying purchase at the same pace, at $85 billion per month, and resume its operation twist at auction in January.

Operation twist uses the proceeds from maturing short-term securities to buy long-term securities.

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