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FOMC Votes to Continue Low Rates, Bond Buy Program

With a swipe at both the President and Congress and concerns about ""downside risks"" to the economy, the ""Federal Open Market Committee"":http://www.federalreserve.gov/monetarypolicy/fomc.htm (FOMC) voted 11-1 Wednesday to leave interest rates unchanged and to continue its program of purchasing agency mortgage backed securities and longer term Treasury securities.

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The FOMC explained the actions should ""maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."" Kansas City Fed President Esther George cast the lone negative vote.

In announcing its decision at the conclusion of a two day meeting, the ""FOMC"":http://www.federalreserve.gov/newsevents/press/monetary/20130501a.htm offered a rare criticism, accusing both the executive and legislative branches of hold-back growth.

""Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated,"" the committee said in its meeting-ending statement. ""Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth.""

Fiscal policy is set by the White House and Congress.

""Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability,"" the statement said. ""The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate willgradually decline toward levels the Committee judges consistent with its dual mandate. The Committee

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continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.""

The FOMC reiterated its intention to continue its monetary policies--maintaining the target Fed Funds rate at 0-0.25 percent and its program of purchasing securities--""at least as long as the unemployment rate remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.""

In its statement, the Committee said ""labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated."" Recent reports on initial unemployment claims though have been erratic. The Bureau of Labor Statistics will report Friday on payroll jobs and the unemployment rate for April.

Other reports issued Wednesday by payroll processing firm ADP and by the Institute for Supply Management, suggested Friday's report could be weak. For March, BLS reported the number of payroll jobs increased 88,000, the weakest growth since last June though the unemployment rate dropped to 7.6 percent, the lowest since December 2008.

The Federal Reserve program involves purchasing $40 million per month agency mortgage-backed securities and $45 million per month of longer-term Treasury securities. At the same time, the Federal Reserve will continue reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

George cast the lone dissenting vote--as she had since she became a voting member of the Committee in January--expressing concern ""that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.""

_Hear Mark Lieberman on P.O.T.U.S. radio, Sirius-XM 124, on Friday at 8:45 a.m. and again at 1 p.m. Eastern._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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