US Fed sticks to stimulus plan,worried about fiscal drag

The US Federal Reserve stuck to its plan to buy $85 billion in bonds each month to push down borrowing costs and prop up economy,citing risks to growth from recent budget tightening in Washington.

Written by Reuters | Washington | Published:May 2, 2013 1:59 am

The US Federal Reserve stuck to its plan to buy $85 billion in bonds each month to push down borrowing costs and prop up economy,citing risks to growth from recent budget tightening in Washington.

Describing the economy as expanding moderately in a statement that largely mirrored its March decision,Fed officials cited continued improvement in labour market conditions.

But they reiterated that unemployment is still too high for policymakers’ comfort,reinforcing their desire to keep buying assets until the outlook for jobs improves substantially.

“Fiscal policy is restraining growth,” the Fed said in its statement. “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation.” Until recently,analysts had expected the Fed to buy $1 trillion in Treasury and mortgage-backed securities during its ongoing third round of quantitative easing,known as QE3. Now,things are looking a bit more shaky.

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