The Fed predicted that the economy would expand between 2.5 percent and 2.9 percent in 2012, and between 3 percent and 3.5 percent in 2013. Both ranges are significantly lower than its last projections, made in June.
The Fed also predicted that the rate of unemployment would remain above 8.5 percent at the end of 2012, and above 7.8 percent at the end of 2013.
These forecasts, published four times a year, do not have a particularly good track record, but they do offer a window on the state of the policymakers’ minds. In a word: Glum.
Nevertheless, the Fed announced no new measures to stimulate growth Wednesday following a two-day a meeting of its policy-making committee, although it said that it remained concerned about the fragile health of the economy.
The Fed’s assessment was somewhat brighter than after its last meeting in September. Growth has “strengthened somewhat,” it said, thanks in part to stronger consumer spending. But the central bank continued to note “significant downside risks to the economic outlook, including strains in global financial markets.”
“The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually,” the Fed said in a statement released after the meeting, held every six weeks.
Charles Evans, the president of the Federal Reserve Bank of Chicago, dissented from the decision to do nothing. He argued for new measures to spur growth, echoing recent speeches in which he has criticized the Fed for caring more about inflation than unemployment. It was the first time since 2007 that a board member has dissented in favor of doing more.
The Fed had announced new efforts to spur the economy after each of the last two meetings of the Federal Open Market Committee.
In August, the Fed announced its intention to maintain short-term interest rates near zero for at least two more years, provided that inflation remained low — a decision left unchanged Wednesday. In September, it decided to further reduce long-term interest rates by shifting $400 billion from investments in short-term Treasury securities to longer-term Treasuries.
The 9-1 decision to pause now comes as the economy has shown signs of improving health in recent weeks, highlighted by the government’s estimate that growth rose to an annual pace of 2.5 percent in the third quarter. At the same time, the rate of inflation continues to decelerate more slowly than the Fed had expected, although markets continue to show little concern about it.
Fed officials also have doubts about their ability to increase the pace of growth, arguing that the lack of demand that is holding back the economy must be addressed by fiscal policy, meaning changes in taxation or government spending.
The combination of factors has postponed for now any movement toward a new round of stimulus, such as the proposal by the Fed Governor Daniel K. Tarullo last month that the Fed should consider buying large quantities of mortgage-backed securities to spur the housing market.
Fed officials have been careful to say that they remain willing to expand the central bank’s massive investment portfolio if economic conditions deteriorate. The statement repeated the Fed’s boilerplate promise that it “is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.”
But this meeting was more of a test of what the Fed was willing to do when the economy is merely muddling. The answer is nothing new.
Article source: http://www.nytimes.com/2011/11/03/business/economy/fed-holds-rates-and-strategy-steady.html?partner=rss&emc=rss
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