Fed says US economy has slowed, takes no new steps
Wednesday, August 1, 2012
WASHINGTON (AP) — The Federal Reserve said Wednesday that the U.S. economy is losing strength and repeated a pledge to take further steps to boost growth if hiring remains weak.
The Fed took no new action after a two-day policy meeting. But it acknowledged in a statement released after the meeting that economic activity had slowed over the first half of the year, with job creation remaining sluggish and consumer spending tapering off.
The Fed reiterated its plan to hold short-term interest rates, now near zero, at very low levels until at least late 2014.
Market reaction to the Fed’s announcement was muted. Stocks fluctuated slightly after the statement was released and ended the day lower.
The Dow Jones industrial average fell 33 points to 12,976, and broader indexes also closed down. The yield on the 10-year Treasury note increased from 1.50 percent to 1.52 percent.
The statement was slightly different than the one issued after the Fed’s last meeting, June 19 and 20.
In addition to noting that the economy had “decelerated,” the Fed’s policymaking committee said it would “closely monitor incoming information” and “will provide additional accommodation as needed” to stimulate the economy and job creation. In the June statement the central bank said “the economy has been expanding moderately” and that it “is prepared to take further action as appropriate.”
Many economists believe the Fed could launch another program of buying government bonds and mortgage-backed securities at its September meeting if the economy doesn’t show improvement. The goal of the program, known as quantitative easing, would be to drive long-term rates, which are already at record lows, even lower.
The Fed’s next move could depend on whether the European Central Bank, which meets Thursday, takes any action to stimulate growth among the 17 countries that use the euro.
The next big signal on the U.S. economy’s health comes Friday, when the U.S. Labor Department reports on July hiring and unemployment trends.
“The Fed took no action at this meeting but strongly hinted that there will be further easing action at the next meeting in September,” said David Jones, chief economist at DMJ Advisors.
U.S. economic growth slowed to an annual rate of just 1.5 percent from April through June, down from a 2 percent rate in the first quarter.
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