Fed Stands By Stimulus, and Says It’s Open to More

The Fed emphasized that it was ready to increase or decrease its efforts to spur growth and reduce unemployment as necessary, a more balanced position than it took earlier in the year, reflecting the reality that a strong winter has once again yielded to a disappointing spring.

It was the first time that the Fed had explicitly mentioned the possibility of doing more in a policy statement, although officials, including the Fed’s chairman, Ben S. Bernanke, have made the point repeatedly in public remarks.

Analysts disagreed about the central bank’s intent. Some saw it as a signal that the Fed’s next move could be an expansion of its stimulus.

Others, however, said the Fed was simply underscoring that it did not plan to reduce its asset purchases. It is buying $85 billion a month in Treasury and mortgage-backed securities.

“I don’t think there’s much chance of them stepping it up,” said Jim O’Sullivan, chief United States economist at High Frequency Economics in New York. “But this is certainly their way of saying there’s no bias toward scaling down.”

The Fed maintained a relatively sunny economic outlook in its statement, released after a two-day meeting of its policy-making committee. It said that the economy was expanding at a “moderate pace” and that the labor market had shown “some improvement.” It added, however, that federal spending cuts were “restraining economic growth,” an implicit critique of the rest of the government.

That language was stronger than the Fed had used in previous assessments of the economic impact of fiscal policy. Fed officials have repeatedly expressed frustration that fiscal policy is working at cross-purposes with their own monetary policy. The statement also noted that the pace of inflation had slackened, a potential sign of economic weakness. Bringing the annual rate of inflation closer to its target of 2 percent has been a primary goal of the Fed’s four-year-old stimulus campaign, but the statement expressed little concern about the recent deceleration to a pace of only about half that level.

Investors and the Fed have taken the view that inflation is likely to return to a more normal pace without additional effort.

“The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline” to a level the Fed regards as acceptable, the statement said.

Michael Feroli, chief United States economist at JPMorgan Chase, said the stability of the Fed’s economic outlook suggested that policy, too, would remain stable.

“In effect, the Fed signaled that the pace of asset purchases would be data dependent in both directions, but that right now the data gives them little reason to change in either direction,” Mr. Feroli wrote Wednesday in a note to clients.

The statement won support from 11 of the Federal Open Market Committee’s 12 members. Esther George, the president of the Federal Reserve Bank of Kansas City, cast the dissenting vote, as she has at each meeting this year, citing concerns about potential “economic and financial imbalances” and the risk of excessive inflation.

The pace of economic growth appeared to slow in the weeks between the Fed’s previous meeting and the one this week. Inflation slackened in March to the slowest pace in two years, while employers added the fewest jobs in any month since last summer. And economists say that the pain of federal spending cuts is just beginning to tell.

Inflation was 1.1 percent during the 12 months ending in March, according to the most recent data from the Fed’s preferred inflation gauge, the Commerce Department’s index of personal consumption expenditures. That is well below the 2 percent annual pace that the Fed considers healthy.

The share of Americans with jobs has not increased since the recession.

Article source: http://www.nytimes.com/2013/05/02/business/economy/federal-reserve-to-continue-stimulus-efforts.html?partner=rss&emc=rss