Federal Reserve officials stay course on stimulus, interest rates
WASHINGTON -- Federal Reserve policymakers said Wednesday they would continue their stimulus efforts and hold steady on rock-bottom interest rates, but announced no new actions as the economy appeared headed for another spring slowdown.
After a two-day policy meeting, the Federal Open Market Committee voted 11-1 to continue its so-called quantitative easing program of purchasing $85 billion of Treasury and mortgage-backed securities each month.
However, for the first time since starting the program last fall, the Fed’s said in its policy statement that the central bank was prepared to “increase or reduce” the pace of its purchases. The language suggested that there could be changes in the program depending on the pace of the recovery.
The Fed did not say it was seeing indications of a slowdown. It said data suggest that “economic activity has been expanding at a moderate pace.” But although the jobs market has shown “some improvement in recent months,” it said, the unemployment rate remains “elevated.”
Fed officials also left the key short-term interest rate at near zero, the same level in place since late 2008, in hopes of spurring businesses to spend money. The Fed reiterated its intention to keep the rate at that level as long as the jobless rate is above 6.5% and inflation is projected to be close to the central bank’s 2% annual target rate.
The unemployment rate was 7.6% in March.
The Fed meeting, the first since mid-March, comes amid signs that the economic recovery is stalling after accelerating in the first quarter.
Economists are concerned that tax increases at the start of the year and large automatic federal budget cuts, known as the sequester, that began March 1 are slowing growth.
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On Wednesday, payroll processing firm ADP said private-sector job growth slowed in April. Employers added just 119,000 net new workers, down from 131,000 in March, it said.
It was the second straight decline and surprised analysts, who had expected the report to show 150,000 net new private-sector jobs were added in April.
The government will release its April jobs report on Friday. Economists are expecting an improvement from March, when the economy added a disappointing 88,000 net new jobs.
Analysts project the economy added 148,000 jobs in April, but Wednesday’s ADP report could signal that the figure will be lower.
In addition, there were weak readings Wednesday on construction spending and manufacturing.
The Fed is limited in any further action to stimulate the economy. Since 2008, it has taken unprecedented steps to boost growth by keeping short-term interest rates near zero and expanding its balance sheet.
Last fall, the Fed launched its most ambitious effort to push down the stubbornly high unemployment rate, purchasing the $85 billion in bonds a month to hold down long-term interest rates.
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