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US central bank to continue bond stimulus

Federal Reserve to continue quantative easing policy until there is conclusive evidence that economy is strengthening.

Last Modified: 19 Sep 2013 09:52
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The US Federal Reserve says it has decided against reducing its stimulus for the US economy and will continue to buy $85bn a month in government bonds.

The central bank said it will continue to buy bonds while it awaits conclusive evidence that the economy is strengthening.

The Fed's bond purchases are intended to keep long-term borrowing rates low to boost spending.

"Conditions in the job market today are still far from what all of us would like to see," Chairman Ben Bernanke said shortly after the statement was released on Wednesday.

The Federal Reserve prints money to buy the government bonds in a policy known as "quantative easing", meaning more money is in circulation, keeping lending rates low.

However, the practice can affect inflation.

Stocks rose after the Fed released the statement at the end of its two-day policy meeting.

The Standard & Poor's 500 index and Dow Jones industrial average jumped to record highs. The Dow was up more than 100 points shortly after the statement was released.

The Fed said that the economy is growing moderately and that some indicators of the job market have shown improvement. But it noted that rising mortgage rates and government spending cuts are restraining growth.

The bank also repeated that it planned to keep its key short-term interest rate near zero at least until unemployment falls to 6.5 percent, down from 7.3 percent last month.

Employment forecasts

Recent forecasts suggest unemployment could reach that level by late next year. Many thought the Fed would scale back its purchases.

But long-term rates on mortgages and some other loans have jumped since May, when Bernanke first said the Fed might slow its bond purchases later this year.

Bernanke, however, cautioned that the reduction would hinge on the economy showing continued improvement.

The policy statement was approved on a 9-1 vote.

The Fed meeting took place at a time of uncertainty about who will succeed Bernanke when his term ends in January.

Lawrence Summers, who was considered the leading candidate, withdrew from consideration on Sunday.

Summers' withdrawal followed growing resistance from critics. His exit has opened the door for his chief rival, Janet Yellen, the Fed's vice chair.

If chosen by President Barack Obama and confirmed by the Senate, Yellen would become the first woman to lead the Reserve.

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Source:
AP
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