The strongest signals Fed will not slow economy stimulus of $ 600 billion

Responsible for the Federal Reserve said that signs of economic strength not deter them from injecting money into the financial system as long as unemployment remains high.

The Federal Open Market Committee said yesterday after their last meeting in 2010 that growth is "insufficient to reduce unemployment" and inflation has "followed a downward trend." U.S. central bankers said a plan to buy $ 600 billion of bonds through June and renewed his promise of an "extended period of low interest rates.

Stocks rose and Treasuries fell as a continuation of the Fed's stimulus and sales better than expected retail growth increased prospects for next year. Policy makers led by Chairman Ben S. Bernanke, are challenging the Republican criticism that his policy of fuel inflation and bubbles in asset prices to focus on reducing the unemployment rate has remained above 9.4 percent since May 2009.

"The clear message is that there is rethinking the program, regardless of backtracking," said Jim O'Sullivan, chief economist of MF Global Ltd. in New York. "Arguably, played down what had clearly been growing better data."

Signs of economic strength, combined with the prospects for additional fiscal stimulus, have pushed Treasury yields higher, with the 10-year yield rising to 3.47 percent yesterday from 2.57 percent on 3 November the day he announced the second round of easing. The Dow Jones Industrial Average reached its highest level since the September 15, 2008 the bankruptcy of Lehman Brothers Holdings Inc., to close at 11,476.54 yesterday.

U.S. dollar rises

The dollar has risen 3.9 percent against a basket of six currencies, while inflation expectations for the next five years, as measured by the rate of equilibrium between nominal bonds and inflation index, rose to 1, 63 percent yesterday from 1.47 percent on Nov. 3.

The statement from the Fed must "lead market participants to focus on the unemployment rate to the extent relevant to determine whether the economy is recovering fast enough," said Dean Maki, chief U.S. economist Barclays Capital in New York. "The economic data have clearly been improving and the Fed may have sounded far more optimistic than I did."

December 3 A Labor Department report showed the unemployment rate rose to 9.8 percent from 9.6 percent, the economy created only 39,000 jobs in November. Other reports in recent weeks, said an improving economy, such as a larger-than-expected retail sales, the 16 consecutive months of expansion in manufacturing and consumer confidence to a maximum of six months .

'Restriction of credit "

The FOMC statement said that "household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth and the credit crunch."

Fed officials yesterday left its target for the federal funds rate, which covers interbank loans overnight, in a range from zero to 0.25 percent, marking two years of the policy. The central bank is likely to wait until the first quarter of 2012 to increase the rate, based on the median estimate of 8.2 in December poll of economists by us.

The $ 600 billion of purchases are in addition to the Treasury's long-term the Fed is buying for reinvestment of maturity of the mortgage debt, a policy that began in August. June combined purchase of a total of $ 850,000,000,000 to $ 900 million, or $ 110 billion per month, the Fed said Nov. 3. Political leaders reiterated Thursday that he will "regularly review, the purchase program and adjust as necessary.

The central bank has bought 114.1 billion U.S. dollars of Treasury bonds since 12 November, under the program called Queen Elizabeth 2 for the second round of so-called quantitative easing. The Fed bought $ 1,700,000,000,000 debt and mortgage bonds in the first round until March 2010.

The majority disagrees

Kansas City, Thomas Hoenig, president of the Fed, the head of the longest-serving policy, voted against the decision of the FOMC for the eighth straight time and reiterated its view that "continued high level of monetary flexibility "may" destabilize the economy. " He tied the record of former Governor Henry Wallich in 1980 for most in a year dissents.

"Importantly, only recognition of the strong economic data and upward revisions to 2011 from fiscal policy was at odds with Tom," said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. "It would take a lot of good economic news for Bernanke to change your mind" about the stimulus plan.

The list of voting members of the FOMC will change next month to include policy makers have expressed doubts about the asset purchase program.

They expressed concern

President of the Minneapolis Fed Narayana Kocherlakota, Richard Fisher of Dallas and Philadelphia, Charles Plosser, have expressed concern about the effectiveness of the return of the Fed of quantitative easing, although Kocherlakota said in a speech on November 18 that supports policy as "a step in the right direction."

Fed President Charles Evans of Chicago, also will become a voting member, said in October that the central bank would buy securities on a large scale in several times to carry out its preferred strategy to increase inflation temporarily.

The lawmakers said in their statement today they need to guide the economy more in line with its mission the Congress shall determine.

"The unemployment rate is high, and measures of core inflation are relatively low, compared to the levels that the Committee of judges to be consistent in the long term, with its dual mandate," the Fed said, repeating the language the statement last month.

Slower

Inflation excluding food and fuel costs, as measured by the consumer price index for personal expenses, decreased to 0.9 percent in October, the slowest pace since records began in 1960. Central banks prefer a long-term rate of 1.6 percent to 2 percent for core PCE indicator call.

Republican lawmakers, including Rep. Mike Pence Indiana and Tennessee Sen. Bob Corker, want to get rid of half the Fed's legislative mandate that focuses on the maximum use to focus on price stability alone. Texas Rep. Ron Paul, author of "End the Fed," is chair of a subcommittee that oversees the Fed next year.

With the increased political pressure, "which will be much more noise and controversy over the policies of the Fed," said Julia Coronado, chief economist for North America at BNP Paribas in New York.

"This is the time Bernanke Volcker, when you have to engage in policies that are unpopular, but what he thinks he has to do for the good of the economy," he said. Paul Volcker, Fed chairman from 1979 to 1987, rising interest rates as high as 20 percent to tame inflation rate reaching 15 percent.