US Joblessness Forces Fed to Keep Borrowing Rates Low

For all the knotty financial, psychological and political factors complicating the Federal Reserve's effort to get the economy back on track, one persistent and simple truth in its monetary policy statement today says it all:

"Employers remain reluctant to add to payrolls."

The United States just isn't putting back to work the millions of Americans who lost their jobs during and since the 2008-09 recession. And "the disappointingly slow" progress toward the Fed's objective almost seems to mock the central banks' long-running and continuing promise to keep its benchmark costs for borrowed money near zero.

It means the Fed will stick to the policy, announced in November, of flooding the banking system with $600 billion through the purchase of government bonds, as a way to bring down long-term interest rates and give lenders plenty of money for loans to businesses that might start hiring.

And the Fed unsurprisingly kept its target for the federal funds rate -- charged for overnight loans between banks -- at zero to 0.25 percent, while prolonging the promise to keep rates so "exceptionally low" for an extended future.

The only suspense ahead of today's meeting of the policy-setting Federal Open Market Committee was whether some of the new voting members on the FOMC who had criticized the bond-buying program would dissent today.

The unanimous vote behind Chairman Ben Bernanke's plans to keep buying those bonds in the coming months indicated how frustrated Fed officials are with a recalcitrant epidemic of unemployment that has defied a resurgence in the stock market and some other sectors of the economy.

"The economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions," the FOMC said. "Growth in household spending picked up late last year but remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit."

Even as business spending on equipment and software continues to rise, executives and company boards are apparently too skittish about the economy's uncertain future to make big bets on new hiring, the Fed added.

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The unanimous decision defied critics who say the open-ended promise for rock-bottom interest rates and perseverance with the billions of dollars in new bond purchases risks stoking dangerous inflation.

The Fed did acknowledge that the prices of commodities like food and raw materials are rising. But "longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward," the FOMC said.

Indeed, the Fed's favorite reading of inflation -- a Commerce Department gauge that measures the prices paid by American consumers and called the core consumer consumption expenditure index -- most recently showed only mild inflation. When stripping out the volatile costs of food and energy, the core CPE index rose just 0.1 percent in December.