Fed to Continue Stimulus Program
There are speculations that the Federal Reserve will continue buying Treasury securities to stimulate economic growth in 2013. The Fed announced last September that it would buy bonds until the outlook for the labor market improved substantially.
The economy’s recovery remained lackluster and millions of Americans are still jobless. There are some analysts who question the Fed’s ability to improve the situation but few of them doubt that the central bank will keep on trying.
Fed officials continue to give out warnings that failure to prevent the automatic tax increases and spending cuts next year would be bad to the economy, which could fall into recession. They said that a compromise by the White House and Congress would help the Fed’s efforts.
Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, said that he is not prepared to say that the nation is close to having substantial improvement with regards to the employment front. He expects the Fed’s stimulus program to continue even if the fiscal cliff issues are properly addressed.
Lockhart is one of the moderate members of the Federal Open Market Committee who Chairman Bernanke approached to get his support before starting the new policy. The Fed is set to mean on Tuesday and Wednesday. They will determine what to buy and how much to spend. Fed officials continue to debate on how to describe when the agency would stop its stimulus program.
The Federal Reserve must balance its conviction that purchasing bonds decreases borrowing costs for consumers and businesses against the concerns that purchases inhibit its control of inflation or disrupt financial markets.
Economists state that the answer would be more of the same. The Fed is currently buying $40 billion of mortgage-backed securities and $45 billion of Treasury securities per month. Fed officials highlighted that $85 billion last September and indicated since that it would be their goal each month.