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Federal Reserve holds interest rates down, boosts QE

The Federal Reserve took an “unprecedented step” in tying interest rates directly to the unemployment rate and inflation.

The Federal Reserve announced on Wednesday that it would hold interest rates near zero and continue its controversial stimulus program of quantitative easing.

In what Reuters called an “unprecedented step,” the Fed said it would keep interest rates down until the US economy hit the specific target of 6.5 percent unemployment rate.

The Fed also announced that it would start buying $45 billion in treasuries each month, in addition to the current policy of buying $40 billion in mortgage-backed securities.

“The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” said the Fed’s policy-setting panel in a statement.

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“Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook,” the panel added.

The Fed said it would stimulate growth until either the unemployment rate fell to 6.5 percent or the inflation rate reached 2.5 percent.

“In embracing numeric policy targets, the Fed is reflecting a transformation in how it has approached its job under Chairman Ben S. Bernanke,” noted the Washington Post.

The statement was approved by a 11-1 vote, with Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, the sole dissenter.

The announcement came as the White House and Congress continued to grapple with the “fiscal cliff,” around $600 billion of automatic spending cuts and tax increases that would go into effect in January.

Stocks rose modestly after the Fed’s announcement.