Fed sees moderate economic growth, takes no new policy action
By Neil Irwin,
Federal Reserve policymakers said Tuesday that the economy is “expanding moderately” and declined to take any new measures to try to strengthen growth, electing to leave the central bank’s low-interest-rate policies in place.
For the second straight meeting of the Federal Open Market Committee, the Fed made no meaningful changes in its monetary policy: The central bank’s target for short-term interest rates will remain near zero, where it has been for three years, and the Fed is continuing its plans to shift $400 billion of its bond portfolio into longer-term securities to try to lower long-term interest rates.
In effect, the central bank concluded that the economy — on track to post its strongest growth in the final months of 2011 than in any previous quarter this year — is muddling along well enough. Eyeing that emerging economic stability, the Fed has rejected taking more unconventional steps to strengthen it, such as buying hundreds of billions of dollars worth of securities using newly created money.
At least one official, Chicago Federal Reserve President Charles Evans, disagreed. Evans dissented from the decision for the second straight meeting, preferring that the Fed take more action to ease monetary policy and support growth.
The Fed statement made no mention of any changes in the central bank’s communication style. Fed leaders have been discussing ways to more clearly communicate with the public. For example they have been considering setting a more explicit target for inflation or unemployment, or announcing what they expect their interest rate policies to be in the future.
That debate — over how best to guide investor expectations about the Fed’s future actions — is likely to carry over into 2012. Some Fed leaders would be more open to new steps for boosting growth if it were done in the context of a broader strategy.
The decision to stand pat Tuesday reflected a somewhat brighter outlook from the central bank: that the economy is plugging along more solidly than it was a few months ago, despite headwinds from Europe and elsewhere. The Fed statement said that information gained since the policymakers’ last meeting in November suggests “the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.”
Still, the statement suggested that despite some recent positive signs for the economy, there were no champagne corks popping around the mahogany conference table where Fed officials gather eight times a year to set the nation’s monetary policy.
Officials acknowledged the fall in the unemployment rate over the past two months — to 8.6 percent in November from 9.1 percent in September — but reiterated that too many Americans were still out of work.
They noted that investment by businesses in warehouses and factories “appears to be increasing less rapidly” and that the “housing sector remains depressed.”
Fed officials also were clearly worried about the impact of Europe’s deepening debt crisis on the U.S. economy, a recent accord by European leaders in Brussels notwithstanding. Their statement kept language stating that “strains in global financial markets continue to pose significant downside risks.”
“The Fed continues to be disappointed in the pace of the recovery and the evolution of inflation, while acknowledging a better growth trajectory recently,” said Paul Edelstein, director of financial economics at IHS Global Insight, in a report. “So any decision on additional stimulus is deferred until next year.”