Fed Reserve decides to keep its foot on the gas

The Federal Reserve decided to keep its foot on the gas Wednesday and continue to purchase bonds to pump money into the economy. 

In a statement released Wednesday, the Federal Open Market Committee said it would continue purchasing $85 billion of bonds a month in its third round of “quantitative easing,” and would keep interest rates near zero.

The Fed said the economy is showing steady improvement, even as the nation’s fiscal policy continues to drag. However, in a nod that the Fed may be eyeing the exit in the coming months, the committee noted that the downside risks to the economy and the job market have “diminished since the fall.” 

{mosads}Economic projections released by the Fed alongside the latest statement back up that claim. 

Fed officials expect the economy will grow between 2.3 and 2.6 percent in 2013, largely the same as they had anticipated in March. But central bank officials are more optimistic about the labor market. In March, Fed officials thought the jobless rate would hit between 7.3 and 7.5 percent in 2013 and fall to between 6.0 and 6.5 percent by 2015. On Wednesday, those expectations were upgraded to 7.2 to 7.3 percent in 2013, and 5.8 to 6.2 percent in 2015.

The Fed embarked on its third round of “quantitative easing” in September. The central bank has also indicated for months that it plans to keep “highly accommodative” policies in place until either the unemployment rate dipped below 6.5 percent or inflation climbed above 2 percent. The jobless rate is currently 7.6 percent, up slightly in recent months.

The biggest change in Wednesday’s statement was the growth in dissent for the consensus-minded body. 

Esther George, president of the Federal Reserve Bank of Kansas City, has consistently objected to Fed policy, citing inflation concerns. But Wednesday’s statement included a new objection from James Bullard, head of the Federal Reserve Bank of St. Louis, who argued the Fed should more strongly defend its inflation objectives.

The latest statement from the Fed comes minutes before Fed Chairman Ben Bernanke is set to take questions from reporters.

President Obama strongly indicated Monday that Bernanke would not stay on for a third term as Fed chairman when his current term expires at the end of January. In an interview with PBS’s Charlie Rose, Obama said Bernanke had “already stayed a lot longer than he wanted or he was supposed to,” and referred to his work at the central bank in the past tense.