The Federal Reserve left its $1.75 trillion bond-purchase program unchanged today and said inflation will remain subdued for some time.
"Substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time," the Federal Open Market Committee said in a statement after a two-day meeting in Washington where it also kept the benchmark interest rate between zero and 0.25 percent. The rate will stay at exceptionally low levels for an extended period.
Chairman Ben S. Bernanke is watching to see how quickly the economy can recover from the deepest recession in five decades: Orders for durable goods unexpectedly rose in May, a government report showed today, while unemployment continues to climb. The Fed also wants to quell concerns that the $1 trillion expansion in its balance sheet will fuel inflation, pushing bond yields higher and crippling any rebound in the economy.
The central bank added that it is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
The Fed also said the pace of economic contraction is slowing and noted conditions in financial markets have generally improved. Still, President Barack Obama said in an interview with Bloomberg News last week that the jobless rate will exceed 10 percent this year, a level not seen since 1983.
Today's decision was unanimous. The Fed's $300 billion Treasuries-purchase plan is scheduled to end in mid-September, according to the FOMC statement at the conclusion of the March 17-18 meeting, when it was announced. The Fed also committed to buy up to $1.45 trillion of housing debt this year. At its current rate, the Fed will reach the $300 billion of Treasuries by late August.
Total assets on the central bank's balance sheet grew $1.17 trillion over the past year to $2.07 trillion as the Fed loaned to banks, commercial paper issuers, and purchased bonds outright to support the flow of credit to consumers and businesses.
"This is a very difficult period," said Marvin Goodfriend, a former senior adviser at the Richmond Fed who is now an economist at Carnegie Mellon's Tepper School of Business in Pittsburgh. "The Fed is exposed to a concern about inflation because it hasn't committed itself to a low-inflation objective, yet the Fed may need the flexibility to expand its balance sheet further if the economy underperforms."
