Sep 13, 2012

By Bob Komsic

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Following a two-day policy meeting, the U.S. Federal Reserve says it will spend $40 billion a month to purchase  mortgaged-back securities because the economy is too weak to reduce high unemployment.

The Fed says it will keep buying the securities until the job market shows substantial improvement.

The Fed also extended a plan to keep short-term interest rates at record-low levels through mid-2015.

The bond purchases are intended to lower long-term interest rates to spur borrowing and spending.

The Fed has previously bought $2 trillion in Treasury bonds and mortgage-backed securities since the 2008 financial crisis.

Skeptics caution that further bond buying might provide little benefit.

Rates are already near record lows.

Critics also warn that more bond purchases raise the risk of higher inflation later.

Meanwhile, the Federal Reserve has lowered its outlook for growth this year but is more optimistic about the next two years.

The Fed now expects growth to be no stronger than 2 per cent this year, down from the 2.4 per cent forecast in June.

The Fed expects growth to accelerate next year as much as 3 per cent, up from June’s forecast of as much as 2.8 per cent.

For 2014, the Fed projected growth between 3 per cent and 3.8 per cent.

The Fed still thinks unemployment won’t fall below 8 per cent this year.

The unemployment rate is currently at 8.1 per cent.

It says it could be as low as 7.6 per cent next year, and down to 6.7 per cent in 2014.

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