Weak US economy prompts Fed to stick with stimulus plan

Signs that the US economy remains weak, along with evidence that the budgetary impasse in Washington is restraining growth, have convinced policymakers who gathered for the latest meeting of the US Federal Reserve to stick with the extraordinary stimulus measures put in place to support the recovery.

In a statement yesterday at the end of the two-day meeting, members of the bank's policy-setting Open Market Committee said the Federal Reserve, chaired by Ben Bernanke, would continue buying $85bn (£55bn) worth of government and mortgage-related bonds every month.

Whereas the debate in recent meetings has focused on when the bond-buying programme might be ended, this time policymakers raised the possibility of expanding it. "The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labour market or inflation changes," the statement said.

The suggestion comes amid continued weakness in the labour market. In March, the US added a mere 88,000 jobs, less than half of what economists had predicted. Figures for April will be released tomorrow, but ahead of that, a payrolls company, ADP, released a report yesterday showing that private sector hiring slowed last month, with businesses adding 119,000 employees to their payrolls, the smallest gain since September. Economists had expected around 150,000.

Tomorrow's government report, which covers both public and private sector hiring, is predicted to show that the US added 145,000 jobs last month.

Besides the stimulus, the Federal Reserve also touched on Washington's role in holding down the economy, saying fiscal policy was "restraining" growth. Disagreements between Republicans and Democrats over how to cut the deficit have led to some $85bn in spending cuts this year, which could shave half a percentage point off growth. This year millions have been hit by payroll tax rises, again as a result of a failure by politicians to resolve their differences.