The Fed also said it would buy $45 billion in Treasury bonds a month, on top of $40 billon a month it is already buying in mortgage bonds, in an effort to flood markets with money and reduce interest rates on a wide range of loans. Lower interest rates tend to stimulate borrowing, economic activity and employment.
The actions signaled the Fed’s concerns that high unemployment what Bernanke called “an enormous waste of human and economic potential” — will cast a long shadow over the nation for years. Fed officials projected that the jobless rate, now at 7.7%, would not reach 6.5% until near the end of 2015 at the earliest.
The economy faces a possible recession if Congress and the White House fail to avert the “fiscal cliff,” an automatic series of deep spending cuts and tax increases for nearly all Americans set to take effect at the end of the year.
Bernanke added that the risk of going over the fiscal cliff is already cutting into customer spending and business investment. “The most helpful thing that Congress and the administration can do at this point,” he said, “. . . is to find a solution and avoid derailing the recovery.”
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