Fed renews stimulus efforts, ties interest rates to jobless rate

WASHINGTON – The Federal Reserve, maintaining its aggressive efforts to stimulate a slow- growing economy burdened by high unemployment, said it would continue its large-scale bond-buying programs in the new year and, for the first time, announced explicit unemployment- and inflation-rate targets for when the central bank would raise interest rates. Top Fed policymakers, at the end of their last meeting of the year Wednesday, left short-term interest rates near zero and said they were now likely to keep them there until the jobless rate fell to 6.5 percent or lower and the longer-term outlook for inflation exceeded 2.5 percent. Previously, the Fed had said it was unlikely to raise its benchmark interest rate until at least mid-2015. The change reflects a dramatic evolution of the central bank’s communications policies, and it is intended to give the marketplace greater confidence about how long interest rates will remain exceptionally low. The U.S. unemployment rate was 7.7 percent in November, down from 8.1 percent in August, but some of that rate drop is the result of workers leaving the job market. Many economists say the unemployment rate could go back up closer to 8 percent in coming months, and the Fed’s most recent projections – which is to be updated later Wednesday – don’t see the jobless rate falling below 6.5 percent until 2015. Fed officials, as expected, also announced Wednesday that they would continue buying $40 billion of mortgage-backed securities and $45 billion of long-term Treasury bonds a month.