Fed to hold course on US stimulus

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Federal Reserve officials will spend much of a meeting next week debating the potential risks from the central bank’s stimulus plan, but Chairman Ben Bernanke has already signalled he believes the costs of inaction are even greater.

The US central bank looks set to keep buying $85bn a month in mortgage and Treasury bonds in an effort to encourage investment and bolster a weak economic recovery.

A raft of recent data, from retail sales and manufacturing to employment, has shown the economy gathering some steam.

Still, the unemployment rate remains uncomfortably high at 7.7 per cent, while low inflation makes policymakers comfortable that there is plenty of room to let the economy run.

“In light of the moderate pace of the recovery and the continued high level of economic slack, dialing back accommodation with the goal of deterring excessive risk-taking in some areas poses its own risks to growth, price stability, and, ultimately, financial stability,” Mr Bernanke said.

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