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Fed says economy is healthier

Fed says economy is healthier

December 13th, 2011 in News

WASHINGTON (AP) - The Federal Reserve on Tuesday portrayed the U.S. economy as slightly healthier and held off on any new steps to boost the economy.

Hiring is picking up and consumers are spending more despite slower growth globally, the Fed said in its latest policy statement.

Fed officials cautioned that unemployment remains high. And it warned of strains in global financial markets that pose a threat to the world's economy - a reference to Europe's debt crisis. They left open the possibility of taking new steps next year if the economy worsens.

The Fed made only slight changes to November's statement. The policy committee approved it by an identical 9-1 vote. Charles Evans dissented for the second straight meeting, arguing again for more action by the Fed.

Stocks fell after the Fed released its statement. The Dow Jones industrial average lost 90 points in gains and fell another 60 points after the statement was released. Broader indexes also dropped.

Many economists said Fed policymakers likely spent their final meeting of the year fine-tuning a strategy for communicating changes in interest rates more explicitly. The Fed has left rates near zero for the past three years. More guidance would help assure investors, companies and consumers that rates won't rise before a specific time.

The Fed made no mention of a new communications strategy in its statement. But economists say it could be unveiled as soon as next month, after the Fed's Jan 24-25 policy meeting.

Diane Swonk, chief economist at Mesirow Financial, said the November minutes showed the Fed discussed adding an interest rate forecast to its quarterly economic projections.

Swonk said the Fed may be trying to build a stronger consensus before announcing the change. She also noted that three Federal Reserve regional bank presidents who opposed key policy changes this year will not have votes next year.

Charles Plosser of Philadelphia, Richard Fisher of Dallas and Narayana Kocherlakota of Minneapolis all dissented from the Fed's policy statements in September and August after citing concerns that the actions introduced at those meetings could fuel inflation.

In September, the Fed said it would re-arrange its bond holdings to stress longer-term maturities, to try to exert more downward pressure on long-term rates.

That followed the Fed's announcement in August that it planned to keep its benchmark rate at a record low until at least mid-2013, as long as the economy remains weak. It was the first time it had committed to keeping the rate there for a specific period. The Fed repeated that timeframe in its December policy statement.

"I think the Fed will shift its communications policy once the most vehement dissenters rotate off in January," Swonk said. Each year, only five of the 12 regional bank presidents have votes.