Fed puts off any new policy action until 2012
The Federal Reserve, looking at an improving U.S. economy that still faces “significant downside risks” from Europe’s debt crisis, left its benchmark short-term interest rate near zero and put off any new policy action until next year.
Top Fed officials, at the end of their last regular meeting of the year Tuesday, said in a statement that “the economy has been expanding moderately.” And they noted “some improvement” in the job market.
Overall, the statement marked a striking change of tone from a few months ago, when the central bank fretted about “considerably slower” U.S. economic growth and a “deterioration in overall labor market conditions.”
Even so, the Fed again warned about the “strains in global financial markets,” namely the threat from Europe. European leaders have yet to take effective steps to quell concerns that the debt problems in Italy, Spain and other nations could get out of control and lead to the breakup of the 17-nation Eurozone.
Additionally, Fed policymakers said that though U.S. consumer spending was growing, increases in business investments, one of the bright spots of the recovery, appear to be moderating. And the long-depressed U.S. housing market has yet to turn the corner.
As expected, the Fed reaffirmed its pledge, first made in August, to maintain the federal funds rate near zero until at least mid-2013. This benchmark rate, which influences many types of loans, has been pinned at rock-bottom levels since the depths of the recession in December 2008.
“They’re trying to maintain very favorable borrowing costs for businesses and consumers, but for savers the beatings will continue,” said Greg McBride, senior analyst at Bankrate.com.
With the unemployment rate at 8.6% in November, some people on Wall Street were hoping the central bank would signal some changes to boost financial markets and the economy.
As in the Fed’s last meeting in early November, voting member Charles Evans of the Federal Reserve Bank of Chicago dissented from Tuesday’s 9-1 decision to stand pat on policy, saying that he thought the central bank should be doing more.
Analysts said Fed Chairman Ben S. Bernanke and his colleagues are preparing a new communications strategy that would include a forecast for the federal funds rate, possibly along with targets for inflation and unemployment, the Fed’s chief economic concerns.
By giving more information about its goals and where short-term rates are likely to be further out, the Fed’s new communications plan could influence investors’ actions and the broader economy.
Analysts expect the Fed’s new communications strategy to be revealed early next year. Its next policy meeting is scheduled for Jan. 24-25.
