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Fed to spend $45 billion to sustain bond purchases

By The Associated Press

This article was published December 12, 2012 at 11:48 a.m.

— The Federal Reserve will spend $45 billion a month to sustain an aggressive drive to keep long-term interest rates low. And it set a goal of keeping a key short-term rate near zero until unemployment drops below 6.5 percent.

The policies are intended to help an economy that the Fed says is growing only modestly with 7.7 percent unemployment in November.

The Fed said in a statement issued Wednesday that it will direct the money into long-term Treasurys to replace an expiring bond-purchase program.

The new purchases will expand its investment portfolio, which has reached nearly $3 trillion.

The central bank will continue buying $40 billion a month in mortgage bonds. All told, its monthly bond purchases will remain $85 billion.

They are intended to reduce already record-low long-term rates to encourage borrowing and accelerate growth.

The Fed kept its target for its benchmark short-term interest rate at a record low near zero, where it has been for the past four years.

The Fed said Wednesday that it would link any future rate change to lower unemployment, as long as inflation is expected to stay below 2.5 percent.

Before Wednesday, the Fed had said it planned would keep the rate low until at least mid-2015.

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