Fed Sees Economy on ‘Firmer Footing’; Affirms Bond Purchases

Federal Reserve policy makers said the recovery is gaining strength and that higher energy prices will have a temporary effect on inflation, while reaffirming plans to buy $600 billion of Treasuries through June.

“The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said today in its statement after a one-day meeting in Washington. The effects of higher fuel and commodity costs on inflation will be “transitory,” and officials “will pay close attention to the evolution of inflation and inflation expectations,” the Fed said.

The statement represents an upgrading of the outlook by Fed Chairman Ben S. Bernanke and his colleagues, who removed language that the recovery is “disappointingly slow” and that “tight credit” is holding back consumer spending. Policy makers went out of their way to acknowledge higher commodity prices while dismissing any inflation danger.

“This statement takes QE3 off the table, as they are taking off the downside risk in deflation and saying the economy is on track,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in a reference to speculation that the Fed might embark on a third round of quantitative easing.