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Fed holds off on new stimulus -- for now

August 01, 2012|By Don Lee
  • Federal Reserve Chairman Ben Bernanke appears on a television screen on the floor of the New York Stock Exchange.
Federal Reserve Chairman Ben Bernanke appears on a television screen on… (Richard Drew / Associated…)

WASHINGTON -- Federal Reserve officials shied away from taking new policy action Wednesday but gave a stronger indication that they are likely to launch a new round of stimulus to support the faltering economy and job growth.

Fed policymakers, at the conclusion of their two-day meeting, acknowledged that economic activity has "decelerated somewhat over the first half of this year," whereas in their previous statement in June, officials said the economy had been expanding moderately.

The new statement also said employment growth has been slow in recent months while inflation has dropped since earlier this year.

With unemployment stuck at a high level and inflation recently sliding below the Fed's 2% target, some analysts had expected the central bank to announce some new modest step Wednesday, especially given slowing global growth and the continuing financial strains from Europe.

But the Fed held off and instead repeated its earlier pledges: to keep short-term interest rates near zero at least through late 2014 and to continue through the end of this year a program to swap short-term bonds for longer-term ones aimed at holding down long-term interest rates.

The Fed statement Wednesday suggested that officials were waiting to see more economic data before launching a new program such as another round of big bond purchases. The most recent economic reports have shown a weakening recovery and unsatisfactory job growth, but given questions about the potency of new monetary stimulus, analysts said it was likely Fed officials wanted to see more data confirming the slowdown.

On Wednesday, new reports showed manufacturing shrank in July for the second straight month but that construction activity picked up in June as the housing market is showing signs of recovering.

The government is scheduled to  release the jobs report for July on Friday. The Fed's next policy meeting is set for Sept. 12-13.

ALSO:

U.S. growth slows in the 2nd quarter

U.S. manufacturing activity declines again in July

Bernanke says economy losing momentum, gives no hint of more stimulus

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