Fed Gets Aggressive to Combat Unemployment

WASHINGTON (CN) - The Federal Reserve will increase its purchasing of mortgage-backed securities to a pace of $40 billion per month to help boost the economy.

"The United States has enjoyed broad price stability since the mid 1990s and continues to do so today," Federal Research Board Chairman Ben Bernanke said Thursday. "The employment situation, however, remains a grave concern. While the economy appears to be on a path of moderate recovery, it isn't growing fast enough to make significant progress to reduce the unemployment rate."

In addition to boosting its mortgage-backed securities purchases to $40 billion per month, the Federal Open Market Committee also agreed continue through the end of the year its program to extend the average maturity of its holdings of securities.

In a statement, the Fed said that its actions "will increase the committee's holdings of longer-term securities by about $85 billion each month through the end of the year."

The result means "downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," it said.

The Fed pledged to spend more on mortgage-backed securities and "undertake additional asset purchases" if the economy still lags over the coming months.

"With an inflation anticipated to run at or below our two percent objective, the committee has become convinced that further policy accommodation is warranted to strengthen the recovery and support the gains we've begun to see in housing and other sectors," Bernanke said.

While Bernanke promised aggressive tactics to boost the sluggish recovery, he conceded that economic outlooks submitted by FOMC participants remain uncertain. Fiscal contraction and unstable European markets remain a risk to the U.S. recovery, Bernanke said.

Amid rumors of elevated inflation rates, Bernanke said the Fed will strive to keep its 2 percent annual inflation rate goal.

"Our policy approach doesn't involve intentionally trying to raise inflation," Bernanke said. "That's not the objective. The idea is that we make sure we provide enough support so the economy will grow fast enough to bring unemployment down over time."

FOMC member Jeffrey Lacker alone voted against the policy actions. Lacker opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.

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