Fed takes no new steps to spark U.S. economy
U.S. Federal Reserve Board Chairman Ben Bernanke testifies before the Senate Banking, Housing, and Urban Affairs Committee on July 17, 2012, in Washington. / Karen Bleier/AFP/GettyImages
(CBS/AP) WASHINGTON - The Federal Reserve says the economy is losing strength and repeated a pledge to take further steps if the job market doesn't show sustained improvement.
Despite that stance, the Fed took no new action after its two-day policy meeting. But it acknowledged that economic activity had slowed over the first half of the year, unemployment remains elevated, and consumer spending has weakened.
Policymakers repeated their plan to hold short-term interest rates at record low levels until at least late 2014. Most economists say the Fed is likely to go further at its September meeting by launching another bond-buying program to drive down long-term interest rates.
The statement was approved on an 11-1 vote. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented for a fifth time this year.
"Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year," the Fed said in a statement. "Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable."
The statement was nearly identical to the one issued after the Fed's June meeting, expect for language noting slower growth. The Fed repeated that strains in the global market pose a significant risk to the U.S. economy, the housing market is improving but remains depressed and inflation remains tame.
Expectations that the Fed will take action to spark the U.S. economy have risen as growth has declined in recent months. The economy grew at an annual rate of only 1.5 percent from April through June, as Americans scaled back their spending. Personal expenditures fell $1.3 billion in June, or 0.1 percent, compared with the previous month, the U.S. Commerce Department reported this week.
That deceleration is heightening concerns that the economy could be stalling three years after the recession ended. Other signs also point to a slowdown.
U.S. manufacturing shrank for the second straight month in July, according to data released Wednesday by the Institute for Supply Management, a trade group of purchasing managers. The group's index of manufacturing activity ticked up to 49.8, from 49.7 in June. A reading below 50 indicates contraction. June was the first time the survey showed manufacturing contracted in three years.
Other measures of the economy's health show it continuing to heal, if slower than the Fed and other policymakers would like. Payroll provider ADP said today that businesses added 163,000 jobs last month, down from a revised total of 172,000 jobs it reported for June.
The report only covers hiring in the private sector and excludes government job growth. The Labor Department will offer a more complete picture of July hiring on Friday.
The U.S. Labor Department releases the July jobs report on Friday. Economists forecast that U.S. employers added 100,000 jobs in July. That would be only slightly better than the 75,000 a month from April through June and still down from a healthy 226,000 average in the first three months of the year. The unemployment rate is expected to stay at 8.2 percent.
Worries have also intensified about Europe's debt crisis and whether 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.
In his semiannual report to Congress on July 17, Fed Chairman Ben Bernanke told members of the Senate Banking Committee that the central bank is prepared to take action to stimulate the economy. Although he stopped short of specifying what steps the Fed considering, his remarks were enough to boost stocks.
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