Fed to keep pumping cash into US economy

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The Independent Online

Investors were reassured after America's central bank signalled yesterday that it would continue to support the world's largest economy by buying billions of dollars worth of bonds every month.

The Federal Reserve made no chances to its loose monetary stance for its latest policy meeting, which concluded on Wednesday. Although it slightly lowered its growth forecasts for 2013 and 2014, the focus was on whether the Fed would tweak its programme of buying $85bn (£56bn) in mortgage and government bonds to support the economy every month.

The Fed's forecasts for unemployment were more optimistic, though still well above the 6.5 per cent level that the bank views as critical before it begins raising interest rates.

At a press conference following the meeting, the bank's chairman, Ben Bernanke, said that while there were risks to keeping the stimulus in place, including the possibility that some investors might use the easy regime as an excuse to take on too much risk, such challenges were "manageable".

Mr Bernanke also weighed in on the recent flare-up in the European sovereign debt crisis, with the world looking on nervously at the events unfolding in Cyprus.

"It's a difficult situation in Cyprus," he said, noting that while the country's GDP was relatively small, its financial sector was much larger, making Cyprus's travails a much bigger problem that might be apparent at first glance.

"But having said that, the vote [by the country's MPs over a proposed tax on savings in banks as condition of a European bailout] failed and the markets are up today and I don't think the impact has been enormous," he added.

He said he expected the euro area countries and Cyprus to come to an agreement to ease the pressures in the country. "We hope the Europeans will up with an efficient and equitable solution."