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US Central Bank Expects to End Direct Support of Economy in October

  • VOA News

Federal Reserve Chairman Janet Yellen speaks during a news conference at the Federal Reserve in Washington, Sept. 17, 2014.

Federal Reserve Chairman Janet Yellen speaks during a news conference at the Federal Reserve in Washington, Sept. 17, 2014.

The U.S. central bank says it expects to end its direct support of the American economy next month, but still maintain its record-low benchmark interest rate for a "considerable time" until economic conditions improve more.

Policy makers at the Federal Reserve Wednesday said the U.S. economy, the world's largest, is still advancing "at a moderate pace." But they said the country's labor market, which added a disappointing 142,000 jobs in August, is not improving as fast as it could.

The Fed, after a two-day meeting in Washington, cut another $10 billion in the size of the monthly asset purchases it has been making for nearly two years in an effort to boost the country's recovery from the severe recession in 2008 and 2009. The policy makers said that if the country's economic advance continues in the coming weeks, they expect to end their last $15 billion in monthly asset purchases at their next meeting in late October.

Fed chair Janet Yellen said the economic downturn, the country's worst in seven decades, continues to play a role in U.S. economic fortunes.

"Many cite the residual effects of the financial crisis, which although slowly diminishing, are likely to continue to restrain household spending, constrain credit availability, and depress expectations for future growth in output and incomes," she said.

At the same time, the policy makers said they will keep their benchmark interest rate at zero to a quarter of a percentage point for a considerable period after that, especially if inflation in the U.S. continues to run below the 2 percent target set by the Federal Reserve.

Yellen has suggested that the central bank may not increase the interest rate until mid-2015. The Fed's benchmark rate directly influences interest rates that businesses and consumers are charged to borrow money.

Economic growth in the U.S. has been uneven this year, with a 2.1 percent contraction in the first quarter and 4.2 percent growth in the April-to-June period.

The Fed is predicting a 2 to 2.2 percent advance for all of 2014, and a 2.6 to 3 percent gain next year. Even so, the 2015 projection is down from an earlier central bank forecast.

The path to a rate increase is hugely important for investors. In June, the median of the Fed's projections suggested rates would reach 1.125 percent by the end of next year, more than a quarter point higher than futures markets have priced in.

Some information in this report came from Reuters.

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