US Fed ties interest rate to jobless in landmark move

New York

The US Federal Reserve renewed its efforts to support the still weak American economy today, unveiling a fresh round of bond buying and, in a landmark move, tying critical interest rate decisions to the health of the jobs market.

The move came as Ben Bernanke, America's top monetary policymaker, lamented the "enormous waste human and economic potential" as the country struggles to get back on its feet following the Great Recession. He spoke after the Fed said it would only begin raising interest rates from near zero levels struck during the financial crisis when the jobless rate falls below 6.5 per cent. It also tied policy to concrete inflationary thresholds, setting a new, more transparent precedent for the way monetary policy decisions are made in the world's largest economy.

But, perhaps mindful of the risk of backing the Fed into a corner, Mr Bernanke clarified that the new approach "by no means puts monetary policy on auto-pilot." The bank, he said, would continue to study a variety of indicators when making interest rate decisions.

Alongside, the central bank also announced plans for a new round of government bond purchases worth $45bn per month to replace Operation Twist, which expires at the year's end, and under which the Fed was buying long term government bonds with the money it raked in be selling shorter term debt. The new round – labelled QE4 by economists – has no such counter; the bank will essentially be crea ting new money to fund an expansion of its balance sheet. This will be in addition to the ongoing $40bn per month of mortgage backed securities that it began buying earlier this year.

The decisions came as Congressional Republicans and the White House attempt to hammer out an agreement that would resolve, or at least lessen, the so called 'fiscal cliff' of automatic tax rises and spending cuts that otherwise will kick in at the beginning of the next year.

"Clearly this is a major risk factor and a major source of uncertainty about the economy going forward," Mr Bernanke said today. The Chairman added that forecasters both at the Fed and beyond were, he suspected, assuming that some kind deal is reached that resolves the cliff in an "intermediate way."

If the political class fails, however, he warned that he didn't think that the "Federal Reserve has the tools to offset that event." Expectations, he suggested, would then have to be tempered accordingly.

This might happen by raising the level of bond buying – but again, this would be action on the margins, he warned. Earlier, in a statement after its last meeting of the year, the Fed's Open Market Committee, which makes collective decisions on key issues including rates, continued to strike a cautious tone on the economy, noting that while "the unemployment rate has declined somewhat since the summer, it remains elevated."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent