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Bernanke Keeps Easing Option While Signaling Economy Improving

By bloomberg.com 03/15/2012 03:55:00

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Stocks rose and Treasuries fell after the Federal Open Market Committee yesterday.

Federal Reserve Chairman Ben S. Bernanke is keeping additional easing on the policy-making table even after upgrading his view on the U.S. expansion.

Stocks rose and Treasuries fell after the Federal Open Market Committee yesterday improved its outlook for growth, reducing expectations the central bank will begin a third round of bond buying. At the same time, the FOMC reiterated in a post- meeting statement that the joblessness rate is “elevated” and “significant downside risks” remain.

Even after the most robust six-month period of job growth since 2006, unemployment persists at 8.3 percent and Bernanke is holding to his plan to keep the benchmark interest rate close to zero through at least late 2014.

“The way the statement was crafted was to keep their options open,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “What they’re trying to tell us is ‘Hey, don’t change your policy outlook because we’re not ready to say things have changed enough’” that no more stimulus is needed.

The Fed has kept its benchmark rate near zero since December 2008, and in January extended a previous pledge to keep rates low through mid-2013. It has also bought $2.3 trillion of bonds in two rounds of so-called quantitative easing.

Unemployment will “decline gradually” toward Fed goals and the inflation outlook is “subdued,” the FOMC said. Policy makers said they expect “moderate economic growth,” compared with a prediction of a “modest” expansion after their January meeting.

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