US economic activity expands, unemployment remains high

The U.S. economic activity has continued to expand at a "moderate pace" with some improvement in the labor market conditions although the unemployment rate remains "elevated," the Federal Reserve said Wednesday. The Federal Open Market Committee (FOMC) stressed that fiscal policy is "restraining economic growth." The FOMC said in a statement that "apart from fluctuations due to changes in energy prices" inflation has been running below its longer-run objective, but longer-term inflation expectations have remained "stable." The Committee expects that "with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate." The Committee "recognizes that inflation persistently below its two percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term." "Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy," the Committee noted. It added that however, it has decided "to await more evidence that progress will be sustained before adjusting the pace of its purchases." The Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of USD 40 billion per month and longer-term Treasury securities at a pace of USD 45 billion per month. The Committee "will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability." "Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook as well as its assessment of the likely efficacy and costs of such purchases," the statement affirmed. In addition, the Committee "decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's two percent longer-run goal, and longer-term inflation expectations continue to be well anchored." The statement stressed that "when the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of two percent