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Economy's so bad, it even has the Fed stumped

WASHINGTON — The economy's continuing struggles aren't just confounding ordinary Americans. They've also stumped the head of the Federal Reserve.

Fed Chairman Ben Bernanke told reporters Wednesday that the central bank had been caught off guard by recent signs of deterioration in the economy. And he said the troubles could continue into next year.

"We don't have a precise read on why this slower pace of growth is persisting," Bernanke said. He said the weak housing market and problems in the banking system might be "more persistent than we thought."

The Fed cut its forecast for economic growth this year to a range of 2.7 percent to 2.9 percent from an April forecast of 3.1 percent to 3.3 percent. It also cut its forecast for next year to a range of 3.3 percent to 3.7 percent from an earlier 3.5 percent to 4.2 percent. The Fed also said unemployment would stay higher than it had expected earlier.

In a policy statement issued at the end of a two-day meeting, the Fed blamed the worsening economic outlook in part on higher energy prices and the earthquake and tsunami in Japan, which slowed production of cars and other products.

But at a news conference afterward, the second of what the Fed says will be regular question-and-answer sessions, Bernanke conceded the economy's troubles are more puzzling and potentially more long-lasting than a pair of temporary shocks.

The Fed's statement Wednesday stood in contrast to the more upbeat view when officials last met, eight weeks ago. At that time, the central bank said the job market was gradually improving.

Since then, the news has been gloomy. The government reported that the economy grew at an annual rate of only 1.8 percent in the first three months of the year. It isn't expected to grow much faster in the current quarter. The economy added 54,000 jobs in May, far fewer than in the previous two months. Consumer spending has weakened, too.

The Fed stuck to its plan to bring an end this month to a program to help the economy by buying $600 billion in government bonds. The Fed also intends to keep short-term interest rates near zero "for an extended period," a phrase it has been using the past two years. Though the central bank noted that inflation has risen, it expects that to be temporary as well.

The Fed has kept rates at ultra-low levels since December 2008. Abandoning the promise to keep them there for an "extended period" would be viewed as a signal that the Fed is preparing to raise interest rates. Many private economists think it will be another full year before the economy has recovered enough for the Fed to do it.

The bond-buying program has been controversial. Supporters say the bond purchases have kept interest rates low and encouraged spending. Low long-term rates make it easier to buy homes and cars and for companies to expand.

They also argue that those lower rates fueled a stock rally. Since Bernanke outlined plans for the program last August, the Standard & Poor's 500 index is up 24 percent.

Lower rates made stocks more attractive to investors than bonds, whose yields were falling.

Obama feeling pain of economic reports

The bad economic news is taking a political toll on President Barack Obama. For the first time this year, an Associated Press-GfK poll found that fewer than 50 percent of respondents believe Obama deserves re-election. His overall approval rating fell to 52 percent in the new poll. It had risen as high as 60 percent after the U.S. raid last month in Pakistan that killed Osama bin Laden.

Incomes up, a little

Florida incomes are growing again, but still lag behind most of the country. The U.S. Bureau of Economic Analysis says personal income in Florida grew 1.6 percent between the fourth quarter of 2010 and first quarter of 2011. That's the strongest performance since the recession officially ended in mid 2009, but shy of the national growth rate of 1.8 percent. Florida ranked 38th among all states. All 50 states and Washington, D.C., were in positive territory with personal incomes rising, but they varied widely: from a 0.7 percent increase in Iowa to a 6.9 percent jump in North Dakota.

Jeff Harrington, staff writer

Economy's so bad, it even has the Fed stumped 06/22/11 [Last modified: Wednesday, June 22, 2011 11:16pm]
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