WASHINGTON – Federal Reserve officials voted Wednesday to continue pumping money into the economy and keep interest rates near zero as they wrapped up their regular policy-making meeting amid fresh signs that their massive stimulus effort is gaining traction.
All but one of the 12 members of the Fed’s policy-making committee voted in favor of the plan. In a statement, the Fed said it has seen “a return to moderate economic growth” in recent months. Holding steady now suggests that the central bank views recent data showing a pickup in job growth and strength in the housing market as a validation of its course of action.
Stocks closed higher on the news: The Dow Jones industrial average rose 55 points, or 0.4 percent, to close at 14,511. The Standard & Poor’s 500 index rose 10 points, or 0.7 percent, to 1,558. The The Nasdaq composite index rose 25 points, or 0.8 percent, to 3,254.
Still, the Fed slightly lowered its forecast for economic growth over the next few years, even though its outlook for the job market was a little brighter. The Fed lowered its projections for unemployment through 2015, forecasting a jobless rate of under 7.5 percent by the end of the year. It has promised to keep interest rates low until unemployment is at least 6.5 percent or inflation is at least 2.5 percent. Thirteen of the Fed’s top 19 officials believe the first rise in interest rates won’t occur until 2015.
“The Fed is winning,” economists at High Frequency Economics wrote in a research note last week. The numbers “are suggesting significant upward momentum, raising the potential for growth to effectively ‘feed on itself.'”
The economy created 236,000 jobs in February, a surprisingly strong number given fears of federal spending cuts. Many of those jobs were in construction, a sector that has rebounded after getting pummeled during the collapse of the housing market. A report by TD Economics estimated the industry would add 400,000 jobs this year.
Economists credit much of the boom to the Fed’s fueling of rock-bottom mortgage rates that are helping to stoke demand.
Kansas City Fed President Esther George voted against the Fed’s move on Wednesday and during its previous meeting in January. Both times she argued that the stimulus risks overheating the economy in the future.