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Fed ties stimulus to jobs, inflation in unprecedented steps to bolster economy

By Zachary A. Goldfarb,December 12, 2012

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The Fed had already been buying $45 billion in Treasury bonds and $40 billion in mortgage bonds per month. But the Treasury purchases were set to end this month, and that could have sent a confusing message to the markets at a time when the Fed wanted to signal that it was promoting growth. So the Fed is continuing the purchases.

The actions followed significant new commitments made earlier in the fall, when the Fed said it would seek to bolster the economy even after the recovery began to strengthen.

The Fed’s transformation

In embracing specific economic targets for unemployment and inflation, the Fed is reflecting a transformation in how it has approached its job under Bernanke.

Traditionally, the central bank has offered very little public information about how it planned to intervene in the market. Since taking the helm, Bernanke has pushed officials to allow the central bank to be more open.

The Fed’s policy statement Wednesday said it had seen moderate economic growth since its last meeting in October but warned that it “remains concerned that . . . economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.”

The central bank also released economic projections. The Fed expects the unemployment rate at the end of next year to be between 7.3 percent and 7.7 percent.

One member of the Fed, Jeffrey M. Lacker, the president of the Federal Reserve Bank of Richmond, dissented, saying he disagreed with the decision to purchase bonds and the characterization of the conditions under which it would be appropriate to keep interest rates ultra-low.

The Fed will meet again late next month.

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