Federal Reserve stays its course

CNNMoney will broadcast Chairman Ben Bernanke’s press conference live at 2:15 p.m. ET online. By Annalyn Censky, staff reporterApril 27, 2011: 1:25 PM ET

NEW YORK (CNNMoney) — The Federal Reserve reaffirmed its commitment to its current policies Wednesday, while acknowledging continued weak spots in the economy.

“The economic recovery is proceeding at a moderate pace,” the Fed said, a slight change from last month’s statement that described the economic recovery as being “on a firmer footing.”

Since the March meeting, weakness in the housing sector has continued, as have gradual improvements in the job market, the Fed said.

The Fed also said that it will continue its efforts to stimulate the economy, by keeping interest rates low for an “extended period,” reinvesting the interest earned on its current asset holdings and buying up to $600 billion in long-term Treasuries through the end of June.

The new round of Treasury purchases — known as the second round of quantitative easing or QE2 — have come under criticism by economists, and even some Fed officials, who are worried about inflation.

They fear the Fed’s easy-money policies are adding fuel to the fire, as commodity prices — oil in particular — rise, and the dollar falls, threatening the purchasing power of American businesses and consumers.

But the Federal Reserve asserted again Wednesday that inflation is likely to be “transitory.” The central bank focuses on core inflation, which strips out volatile food and energy prices — and in those terms, inflation is still well below the Fed’s comfort zone of 2%.

“Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued,” the Fed statement said.

For months, Fed Chairman Ben Bernanke has publicly stated that he doesn’t see underlying inflation as a threat to the economic recovery. Wages aren’t rising, he says, and that’s keeping inflation measures subdued.

Economists say Bernanke is likely to repeat this viewpoint when he stands before the media later Wednesday afternoon.

As Fed chairman, Bernanke has appeared on “60 Minutes” twice and given two press conferences — including one earlier this year. But until Wednesday, the head of the Fed has never taken questions from the media immediately following monetary policy decisions.

Central banks of many of the world’s other leading economies, including the European Central Bank, the Bank of England and the Bank of Japan, have staged similar media gatherings for years.

The press conference is part of the Fed’s efforts to make the institution more transparent and better communicate its goals to the public. Its credibility has recently been questioned, in the wake of the worst recession since the Great Depression, and mixed messages coming from Fed officials in the last few months have not helped.

The Fed has kept interest rates at historic lows since December 2008. It first began buying bonds under QE2 in November of 2010.

In its first round of quantitative easing, the Fed bought $1.7 trillion in Treasuries and mortgage-backed securities between December 2008 and March 2010. Bernanke credits that first round of stimulus with ending the “economic free fall” of the recession in 2008. 

First Published: April 27, 2011: 12:38 PM ET