Federal Reserve sticks with stimulus

  @AnnalynKurtz May 1, 2013: 2:42 PM ET
NEW YORK (CNNMoney)

No surprises here: The Federal Reserve will keep its foot on the gas pedal for the foreseeable future, in its controversial effort to stimulate the recovery.

The central bank pointed to a high unemployment rate and low inflation as key reasons why it will continue buying $85 billion a month in mortgage-backed securities and Treasuries.

That policy, known as quantitative easing, has already injected $2.5 trillion into the economy since December 2008. The aim is to keep long-term interest rates low and thereby stimulate spending.

The Fed said it stands ready to either "increase or reduce the pace" of those purchases in response to economic activity. The remarks came in a statement following a two-day meeting that wrapped up Wednesday.

The Fed also reiterated its plan to keep its key short-term interest rate near zero until the unemployment rate falls to 6.5% or inflation exceeds 2.5% a year.

The central bank is still years away from hitting those goals, according to its own forecasts. The unemployment rate was 7.6% as of March, and the Fed's preferred measure of consumer prices showed inflation is up only 1% year-over-year.

Meanwhile, the Fed pointed to government spending cuts as a key drag on the U.S economy.

"Fiscal policy is restraining economic growth," the central bank said.

Related: El Erian: Fed will struggle to unwind its giant trade

The Fed's policies are credited as one of the key reasons stocks have recovered since the financial crisis, but they remain controversial. Critics believe they could fuel asset bubbles, lead to rapid inflation in the future or simply be ineffective, at a time when Congress is focused on trimming the country's debt.

Esther George, president of the Kansas City Fed, was the only voting member to oppose the Fed's decision, citing concerns that the Fed's policies would increase "the risks of future economic and financial imbalances."

The Fed's next meeting is scheduled to take place June 18 to 19. To top of page



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