Fed says US economy to continue moderate growth going forward

13 March 2012 20:35  [Source: ICIS news]

WASHINGTON (ICIS)--The US economy has been expanding moderately so far this year and is likely to continue that pace over coming quarters, the US central bank said on Tuesday, citing increased consumer and business spending and declining unemployment.

In one of the Federal Reserve Board’s most optimistic evaluations in a couple of years, the bank’s rate-setting Federal Open Market Committee (FOMC) noted that the nation’s labour market conditions have improved further.

“The unemployment rate has declined notably in recent months,” the Fed said in its statement, adding, however, that the jobless rate “remains elevated”.

The US unemployment rate was at or above 9% for much of 2011, including October.  But it eased to 8.6% in November, 8.5% in December, edged down to 8.3% in January and held at that level in February.

In addition to the improving employment data – and probably helping to lower the jobless rate – US household spending has continued to advance, the committee said, as has business spending on plants and equipment.

Although the housing sector remains depressed, the Fed said that it “expects moderate economic growth over coming quarters” for the economy as a whole. 

That modest expansion, which the committee did not quantify, is expected to spur additional incremental declines in the unemployment numbers.

Significantly, the Fed also said that “strains in global financial markets have eased”, a reference to the long-looming prospect of a sovereign debt default by Greece.

But with the Athens government having received new EU bailout funding and a staged write-down of some of its debt, the prospect of default has receded, along with worries about a default-triggered European crash and even a worldwide recession.

However, the committee noted that the eurozone crisis, although easing, “continues to pose significant downside risks to the economic outlook”.

Nor did the Fed see anything particularly worrisome in the recent climb in US retail gasoline prices.

The committee said those price gains would push up inflation temporarily, but not for long and not to a level the Fed would consider actionable – more than 2% annually.

As it has for more than three years, the Fed again said that it is keeping its key federal funds interest rate at 0%-0.25%.

And, given the modest pace of US economic recovery, the Fed reaffirmed its earlier declaration that “conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014”.

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

By: Joe Kamalick
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