US economy strengthens, but risks still loom - Fed

02 November 2011 17:18  [Source: ICIS news]

WASHINGTON (ICIS)--The US economy strengthened somewhat in the third quarter, the US Federal Reserve Board said on Wednesday, but the central bank also cautioned that key sectors remain weak, and the EU debt crisis continues to pose a significant risk to the economic outlook.

The Fed’s rate-setting federal open markets committee (FOMC) also announced it was keeping the record low federal funds interest rate at 0%0.25%, but that decision had been expected.

The committee also specifically repeated the policy first announced in August this year to keep that key interest rate at “exceptionally low levels” at least through mid-2013.

Apparently referring to the third quarter’s improved growth in US gross domestic product (GDP), the Fed noted the nation’s “economic growth strengthened somewhat”.

However, the Fed cautioned, “recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated” at 9.1%.

“Household spending has increased at a somewhat faster pace in recent months [and] business investment in equipment and software has continued to expand,” the central bank noted, “but investment in non-residential structures is still weak, and the housing sector remains depressed.”

In its statement at the end of a two-day economic evaluation meeting, the FOMC said it “continues to expect a moderate pace of economic growth over coming quarters”.

But that moderate pace of growth also means “the unemployment rate will decline only gradually toward levels that the committee judges to be consistent” with normal economic growth.

Even that anticipated moderate growth in the US economy remains in some doubt, however.

The committee noted “there are significant downside risks to the economic outlook, including strains in global financial markets," the latter apparently a reference to the continuing European financial crisis and the risk of Greece’s default on its sovereign debt.

The Fed also said it would continue to invest its funds in mortgage-backed securities, part of a long-term policy designed to keep home loan interest rates low, hopefully to help revive the long-depressed US housing industry.

($1 = €0.73)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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