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Low Inflation Spurs Fed to Keep Buying Bonds

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July 31, 2013 by   Leave a Comment

The Federal Reserve continues to claim that low inflation could hamper the economic expansion and pledged to keep buying $85 billion in bonds every month, according to a Bloomberg report.

“The committee recognizes that inflation persistently below its 2% objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Federal Open Market Committee (FOMC) said today (July 31) at the conclusion of a two-day meeting in Washington.

Chairman Ben Bernanke and his colleagues are debating when employment gains will be sufficient to warrant tapering bond buying that has swelled the Fed’s balance sheet to a record $3.57 trillion. Some policy makers have said the purchases, aimed at fueling growth and reducing 7.6% unemployment, risk creating asset-price bubbles.

The statement contained no new language on the conditions for maintaining the current pace of asset purchases. The Fed repeated the pledge it has used since September that it will continue the purchases until the U.S. labor market outlook has improved substantially.

“A September tapering announcement still seems likely,” said Mark Vitner, a senior economist atWells Fargo Securities LLC in Charlotte, N.C. The FOMC is next scheduled to meet Sept. 17-18 in Washington.

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