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Fed: Economy has 'decelerated,' but no new policy action yet

Linda Robinson and her husband, Timothy, search job listings at WorkForce One in Hollywood, Fla. July’s U.S. jobless rate is expected to stay at 8.2 percent when figures are released Friday.

Associated Press

Linda Robinson and her husband, Timothy, search job listings at WorkForce One in Hollywood, Fla. July’s U.S. jobless rate is expected to stay at 8.2 percent when figures are released Friday.

WASHINGTON — The Federal Reserve said Wednesday that the U.S. economy is losing strength and repeated a pledge to take further steps to boost growth if hiring remains weak.

The Fed took no new action after a two-day policy meeting. But it acknowledged in a statement released after the meeting that economic activity had slowed over the first half of the year, with job creation remaining sluggish and consumer spending tapering off.

The Fed reiterated its plan to hold short-term interest rates, now near zero, at very low levels until at least late 2014.

The statement was slightly different from the one issued after the Fed's last meeting, June 19 and 20.

In addition to noting that the economy had "decelerated," the Fed's policymaking committee said it would "closely monitor incoming information" and "will provide additional accommodation as needed" to stimulate the economy and job creation. In the June statement, the central bank said "the economy has been expanding moderately" and that it "is prepared to take further action as appropriate."

Many economists believe the Fed could launch another program of buying government bonds and mortgage-backed securities at its September meeting if the economy doesn't show improvement. The goal of the program, known as quantitative easing, would be to drive long-term rates, which are already at record lows, even lower.

The Fed's next move could depend on whether the European Central Bank, which meets today, takes any action to stimulate growth among the 17 countries that use the euro.

The next big signal on the U.S. economy's health comes Friday, when the U.S. Labor Department reports on July hiring and unemployment trends.

Economists forecast that U.S. employers added 100,000 jobs in July. That would be slightly better than the 75,000-a-month average from April through June but still below the healthy 226,000 average in the first three months of the year. The unemployment rate is expected to stay at 8.2 percent.

Fed officials have signaled in speeches their concern about job growth and consumer spending. Fed Chairman Ben Bernanke told Congress two weeks ago that the Fed is prepared to take further action if unemployment stays high.

Worries have also intensified that the U.S. economy will fall off a "fiscal cliff" at the end of the year. That's when tax increases and deep spending cuts will take effect unless Congress reaches a budget deal. A recession could follow, Bernanke has warned.

Economists also are concerned that the debt crisis in Europe could intensify. Borrowing costs are too high for many governments, including Spain and Italy, and growth is slowing across the region as the effects of budget-cutting take hold. Unemployment hit a record 11.2 percent in June for the 17 countries that use the euro currency.

The ECB holds a policy meeting today, and expectations are rising that it could try to jolt the region's financial system through bond purchases or other measures. ECB President Mario Draghi said last week that he was ready to "do whatever it takes" to save the euro currency union.

"The Fed is waiting for more data and they're waiting for Europe," said Sharon Stark, chief market strategist at Sterne Agee.

Fed: Economy has 'decelerated,' but no new policy action yet 08/01/12 [Last modified: Wednesday, August 1, 2012 8:46pm]
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