US Fed says economy strengthening

Federal Reserve Chairman Ben Bernanke
© AFP/Getty Images/File Chip Somodevilla

AFP

WASHINGTON (AFP) – The US Federal Reserve resisted pressure to set specific growth targets as it kept policy on hold Wednesday, saying that the economy had “strengthened somewhat” in the third quarter.

Describing the economy as ever-so-slowly-improving, the Fed noted that growth remains lackluster and tumult in global financial markets poses significant risks.

It expressed concern about the high rate of unemployment, a keen focus of political debate, saying it will likely decline “only gradually.”

At the end of a two day policy-setting meeting, the Federal Open Market Committee (FOMC) added no fuel to its efforts to stimulate the economy with ultra-low interest rates and rate-pressuring bond purchases.

In a statement the Fed made no reference to pressure that has built over the past two months.

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The bank had been urged to send a stronger message about its intentions to the markets, including setting a specific GDP growth target.

Indeed, nine FOMC members, including Chairman Ben Bernanke, voted to stay the course while only one dissenter, Charles Evans, advocated for more action to help the economy.

“Economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year,” the FOMC statement said.

“Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated.

The Fed said household spending and business investment have strengthened in recent months.

“But investment in nonresidential structures is still weak, and the housing sector remains depressed.”

The decision to keep policy unchanged was likely to frustrate those pressing the government to move to reduce the 9.1 percent jobless rate, an issue Bernanke himself has highlighted as one of the deepest problems for the economy.

The joblessness issue is likely to play a key role in the fate of President Barack Obama’s push for reelection a year from now, but Bernanke has suggested in recent months that the Fed can only do so much, pushing the problem back to the politicians in the White House and Congress.

Significantly the FOMC statement showed that the so-called inflation hawks, who for the last year have warned that prices could spiral out of control, also sided with Bernanke.

“Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks,” FOMC members agreed.

The panel said that they foresee inflation settling over coming quarters to levels the Fed sees are acceptable under the current low interest rate regime.

US markets fell slightly after the announcement, the Dow slipped from a 1.6 percent gain for the session to a 1.0 percent gain, at 11,780.98, at around 1730 GMT.

© AFP — Published at Activist Post with license

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