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Fed Holds Line on Bond Purchases, Even as Economy Stabilizes

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By Tom Petruno

RISMEDIA, March 17, 2011—(MCT)—Federal Reserve policymakers said recently that the economy appeared to be “on firmer footing” than at their last meeting in late January, but they nonetheless pledged to stick with their program of buying Treasury bonds to underpin the growth.

The Fed’s post-meeting statement was more upbeat than the January statement, while reiterating that the central bank expected to keep its benchmark short-term interest rate at “exceptionally low levels…for an extended period.”

“Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Fed said. “Household spending and business investment in equipment and software continue to expand.”

But the statement also cited the “depressed” housing market and “elevated” unemployment.

The Fed didn’t mention the situation in Japan or the risk that it might pose to the global economy. But the statement did acknowledge that “commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks.”

Although rising commodity costs “are currently putting upward pressure on inflation,” the Fed said, it believed that the effects would be “transitory.”

Fed Chairman Ben Bernanke has maintained that the central bank has room to help stimulate the economy as long as underlying inflation remains low. The Fed traditionally has focused on core inflation, meaning prices other than for food and energy.

In November, the Fed committed $600 billion for purchases of Treasury securities through midyear, an attempt to suppress longer-term interest rates. In the recent statement, the Fed said it intended to complete the program on schedule, by the end of June.

There had been speculation that the Fed might say it was stretching out its purchases into the summer. But the Fed has gotten help in pulling interest rates down: Treasury yields have fallen sharply in recent weeks, reflecting a “flight to safety” by investors frightened by the turmoil in the Middle East and by Japan’s massive earthquake and tsunami.

(c) 2011, Los Angeles Times.

Distributed by McClatchy-Tribune Information Services.

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