With the weight of the rapidly approaching fiscal cliff upon them, and with no more short-term debt to sell, the Federal Reserve committee had some important decisions to make.
Fears regarding the automatic series of tax hikes and spending cuts due to take place next year have led to companies delaying hiring and a decline in both individual and corporate spending, but if the world’s largest economy is to fight back against the global slowdown it needs to strengthen the labour and retail markets.
During yesterday’s greatly anticipated press conference Federal Reserve Chairman Ben Bernanke announced the central bank’s plans to stimulate the economy, including its intention to tie interest rates to unemployment.
In a dramatic move the Fed has decided to hold interest rates close to zero until the unemployment rate in the US drops to below 6.5 per cent at least.
The US unemployment rate currently stands at 7.7 per cent.
Inflation projections for one/two years ahead must also be no more than half a percentage point above the committee’s 2 per cent goal before interest rates move from their current low range.
Bernanke commented that their long-term target for unemployment remains 5.2-6 per cent and that they are anticipating holding rates at their current level ‘at least through mid-2015’.
In a statement the Fed asserted that: ‘The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labour market conditions.’
Although the US central bank will continue to purchase 85 billion Dollars of mortgage backed securities and government bonds, they have altered the way they will go about it so that more funds will be injected into the economy.
As of 10:14 am
The Pound to Euro exchange rate is currently trading at 1.2349
The Pound to US Dollar exchange rate is currently trading at 1.6119
The Pound to Australian Dollar exchange rate is currently trading at 1.5286
The Euro to US Dollar exchange rate is currently trading at 1.3050
The Euro to Pound exchange rate is currently trading at 0.8094
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