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Fed says growth 'paused' in recent months, blames weather

Economic growth 'paused' in recent months, mostly due to the weather, the Federal Reserve said Wednesday as it left its aggressive stimulus strategy intact.

"Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors," the Federal Open Market Committee, the central bank's policy setting body, said in a statement at the conclusion of a regularly scheduled two-day meeting.

The Fed's statement came a few hours after news that the nation's economic growth had contracted at a 0.1 percent rate in the fourth quarter. It was the first contraction in 3-1/2 years as the economy was hit by Superstorm Sandy and by political gridlock in Washington over the nation's finances. 

Describing the nation's job market as continuing its modest pace of improvement, the Fed repeated a pledge to keep purchasing securities until the outlook for employment improves substantially. It added business investment had picked up as financial conditions eased in recent months. 

The Fed's bond-buying program is part of the central bank's unprecedented efforts to spark a stronger economic recovery and drive down unemployment. 

The Fed has kept overnight interest rates near zero since late 2008 and it has tripled its balance sheet to about $3 trillion through its purchases of securities, which are aimed at pushing longer-term borrowing costs lower. 

However, the recovery from the 2007-2009 recession has been stubbornly tepid. 

The GDP report surprised economists, although many said the data overstated the weakness and they expected the recovery to strengthen as the year progresses. 

Nevertheless, the economy has been too weak to do much to lower unemployment. Data on Friday is expected to show the jobless rate remained stuck at 7.8 percent for a third straight month in January. 

Since September, when the Fed launched its latest round of so-called quantitative easing, it has said it would buy bonds until it saw a substantial improvement in the outlook for the labor market, a mark many analysts think won't be reached this year. 

More than half of 41 economists polled by Reuters earlier this month expect purchases to continue into 2014. 

But minutes of the Fed's last meeting in December, released early this month, showed that a few policymakers thought the program should be halted by mid-2013, surprising financial markets. 

Some Fed officials have voiced concern that any economic benefit from the bond purchases could be offset by mounting costs. 

Some policymakers have warned the monetary expansion could fuel a bubble in asset prices, harm the functioning of Treasury and mortgage-backed bond markets, and perhaps lead the Fed to suffer a loss when it eventually sells assets to shrink its balance sheet, which could have serious political consequences. 

Reuters contributed to this report.