Dec 13, 2012 04:38 AM EST

Fed Plans on Capping Interest Rates in the US

The Federal Reserve of America has announced that it would cap all the long term interest until the rate of unemployment slumps below 6.5 percent. It has also confirmed its plans of developing the much debated stimulus program, popularly known as 'quantitative easing', reports CNN money.

Quantitative easing was proposed by the Fed, which particularly implied at keeping long term interest rates low and setting unambiguous economic goals.

 Ben S. Bernanke, Fed chairman called unemployment "a waste of human and economic potential," said The New York Times.

The Federal Reserve Open Market Committee told The Guardian that the employment and economic activity has been continuously improving in the past few months with the exception of weather related obstacles.  However, the committee also claimed that the recent unemployment drop was driven by more people quitting the labor force, therefore keeping the rate actually 'elevated', reported The Guardian.

"Unless a compromise on the year end expiration of tax cuts and imposition of spending cuts can be reached "the economy will, I think, go off a cliff, I don't think the Federal Reserve has the tools to offset that even, "  Bernanke told the Guardian

He also said that reaching a solution was extremely important and urgent and hoped that the congress would take the right measures to handle the fiscal cliff.

In order to help reduce the rate of employment, the Federal Reserve has decided to revamp its asset buying agenda and inculcate a mortgage backed buying program to rekindle the economy. The U.S. currently buys whopping $85 billion assets a month, reported The Guardian.

However the stimulus plan has been facing some opposition as well. Jeffery Lacker, president of the Richmond Fed, has been against the extensive plans all year as he believes this could fuel inflation and have very little impact on the economy, reported CNN Money.

"In short, the Fed is aggressively trying to add to the economy's strength, but its accommodation has become more clearly conditional. The impact of asset buying is debatable, but over time the effects are significant, in our view. The main risk is that inflation expectations start rising significantly; that has not happened so far," Chief U.S. economist at HFE-Jim O' Sullivan  told his clients, according to The Guardian.

Out of the 12 Federal Reserve officials, 11 voted for the stimulus plan, Wednesday Dec. 12.

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