WASHINGTON – The Federal Reserve says the U.S. economy has grown moderately as hiring and consumer spending have improved. As a result, it's holding off on any new steps to boost the economy.
Fed officials cautioned in their statement that unemployment remains high. And it noted that global economic growth has slowed — a reference to Europe's debt crisis. They left open the possibility of taking new steps next year if the economy worsens.
The statement had only slight changes from November's statement. It was approved by an identical 9-1 vote. Charles Evans dissented for the second straight meeting, arguing again for more action by the Fe
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.
The Fed has kept its key rate, the federal funds rate, at a record low of between zero and 0.25% for three years. But the economy, while improving, is still weak.
Unemployment remains high at 8.6%. The Fed is still considering ways to keep downward pressure on long-term rates. The goal is to encourage consumers and businesses to borrow and spend more and invigorate the economy.
But private economists say they think the Fed will delay any further support to the economy, such as additional bond purchases, to see if recent modest gains in U.S. activity will continue.
The U.S. economy remains vulnerable, especially to the impact of the financial crisis and likely recession in Europe. So the Fed is keeping open its options for doing more to bolster the economy.
It's already taken numerous unorthodox steps. December, for example, will mark three years since it cut the funds rate to a record low. It's also bought more than $2 trillion in government bonds and mortgage-backed securities to try to cut long-term rates and lower borrowing costs.
Besides emboldening consumers and businesses to borrow and spend more, lower yields encourage some investors to shift money into stocks. This can boost wealth and spur more spending.
One possibility, should the economy worsen, would be for the Fed to buy more mortgage securities. Doing so could help push down mortgage rates and help boost home purchases. The weak housing market has been slowing the broader economy.
The boldest move left would be a third round of large-scale purchases of Treasury securities. But critics say this would raise the risk of future inflation. And many doubt it would help much anyway, because Treasury yields are already near historic lows. Unless Europe's crisis worsens and spreads, few expect another program of Treasury purchases.
Still, it can't be ruled out.
"Europe is going to be a big headache for quite a while," said Diane Swonk, chief economist at Mesirow Financial. "We are going to have a lot of icebergs to dodge, and if the situation dramatically deteriorates, the Fed will act."
On Nov. 30, the Fed joined other central banks in making it easier for banks to borrow dollars. The goal is to help prevent Europe's crisis from igniting a global panic. The announcement sent the Dow Jones industrial average up nearly 500 points, its best day in 2½ years.
Now, Fed officials are debating how much further to go to signal a likely timetable for any rate changes.
Under one option, the Fed would start forecasting the levels it envisions for the funds rate over the subsequent two years. It could publish this forecast, as it now does its economic outlook, four times a year.
Doing so would help assure investors, companies and consumers that rates won't rise before a specific time. This might help lower long-term yields further — in effect providing a kind of stimulus.
Some worry that such guidance risks inhibiting the Fed's flexibility to revise interest rates if necessary. Others counter that the Fed wouldn't hesitate to shift rates if warranted.
And they say the benefits of clearer guidance outweigh any constraints it might impose.
"You could make investment decisions with more certainty," said Mark Zandi, chief economist at Moody's Analytics.
usatoday.com
Fed officials cautioned in their statement that unemployment remains high. And it noted that global economic growth has slowed — a reference to Europe's debt crisis. They left open the possibility of taking new steps next year if the economy worsens.
The statement had only slight changes from November's statement. It was approved by an identical 9-1 vote. Charles Evans dissented for the second straight meeting, arguing again for more action by the Fe
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.
The Fed has kept its key rate, the federal funds rate, at a record low of between zero and 0.25% for three years. But the economy, while improving, is still weak.
Unemployment remains high at 8.6%. The Fed is still considering ways to keep downward pressure on long-term rates. The goal is to encourage consumers and businesses to borrow and spend more and invigorate the economy.
But private economists say they think the Fed will delay any further support to the economy, such as additional bond purchases, to see if recent modest gains in U.S. activity will continue.
The U.S. economy remains vulnerable, especially to the impact of the financial crisis and likely recession in Europe. So the Fed is keeping open its options for doing more to bolster the economy.
It's already taken numerous unorthodox steps. December, for example, will mark three years since it cut the funds rate to a record low. It's also bought more than $2 trillion in government bonds and mortgage-backed securities to try to cut long-term rates and lower borrowing costs.
Besides emboldening consumers and businesses to borrow and spend more, lower yields encourage some investors to shift money into stocks. This can boost wealth and spur more spending.
One possibility, should the economy worsen, would be for the Fed to buy more mortgage securities. Doing so could help push down mortgage rates and help boost home purchases. The weak housing market has been slowing the broader economy.
The boldest move left would be a third round of large-scale purchases of Treasury securities. But critics say this would raise the risk of future inflation. And many doubt it would help much anyway, because Treasury yields are already near historic lows. Unless Europe's crisis worsens and spreads, few expect another program of Treasury purchases.
Still, it can't be ruled out.
"Europe is going to be a big headache for quite a while," said Diane Swonk, chief economist at Mesirow Financial. "We are going to have a lot of icebergs to dodge, and if the situation dramatically deteriorates, the Fed will act."
On Nov. 30, the Fed joined other central banks in making it easier for banks to borrow dollars. The goal is to help prevent Europe's crisis from igniting a global panic. The announcement sent the Dow Jones industrial average up nearly 500 points, its best day in 2½ years.
Now, Fed officials are debating how much further to go to signal a likely timetable for any rate changes.
Under one option, the Fed would start forecasting the levels it envisions for the funds rate over the subsequent two years. It could publish this forecast, as it now does its economic outlook, four times a year.
Doing so would help assure investors, companies and consumers that rates won't rise before a specific time. This might help lower long-term yields further — in effect providing a kind of stimulus.
Some worry that such guidance risks inhibiting the Fed's flexibility to revise interest rates if necessary. Others counter that the Fed wouldn't hesitate to shift rates if warranted.
And they say the benefits of clearer guidance outweigh any constraints it might impose.
"You could make investment decisions with more certainty," said Mark Zandi, chief economist at Moody's Analytics.
usatoday.com
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