Informing the public about the Federal Reserve
Why do the U.S. economic recovery and labor market require ongoing monetary policy support through the purchase of longer-term Treasury securities and agency mortgage-backed securities?
The Federal Reserve conducts monetary policy to foster its statutory objectives of maximum employment, price stability, and moderate long-term interest rates. Since late 2008, the Federal Open Market Committee (FOMC) has maintained a highly accommodative stance of monetary policy intended to support economic recovery and ensure that inflation, over time, remains stable and near its longer-run goal of 2 percent. At the time of the December 2012 meeting, the unemployment rate remained significantly above the level that most FOMC participants saw as its longer-run normal value. Unless the economy were to grow more quickly than it had been recently, the unemployment rate was likely to remain well above its longer-run normal level for some time. Moreover, the Committee anticipated that inflation over the medium term was likely to run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities, initially at a pace of $45 billion per month, following the completion at the end of 2012 of its program to extend the average maturity of its holdings of Treasury securities. Asset purchases like these support the recovery by maintaining downward pressure on longer-term interest rates, such as mortgage rates, and by making broader financial conditions more favorable for household and business spending and investment.
The Committee will closely monitor incoming information on economic and financial developments in the coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities and employ its other policy tools as appropriate until such improvement is achieved in the context of price stability. As always, in determining the size, pace, and composition of securities purchases, the Committee will take appropriate account of the likely efficacy and costs of such purchases.