Wednesday, August 1, 2012

US Fed holds rate but ready to provide stimulus if needed

    The U.S. Federal Reserve kept its ultra-low benchmark federal funds rate unchanged, as expected, and repeated that it expected to keep the rate at "exceptionally low levels" at least through 2014, dashing the hopes of some that hoped it would to extend the period to 2015.
    But the U.S. central bank firmed up its statement about its readiness to boost the economy further, signaling that it is now ready to move ahead with stimulus measures if required.
    In its latest statement, following a two-day meeting of the Federal Open Market Committee (FOMC), the Federal Reserve said that it "will provide additional accommodation as needed." This compares with the June statement in which it said it "is prepared to take further action as appropriate." 
    To underline that readiness, the Federal Reserve said economic activity had decelerated during the first half of the year and it expects growth to remain moderate over the next few quarters before picking up "very gradually." In June the Federal Reserve said the economy had been expanding moderately.
    "Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook," the U.S. central bank said. 

    The Federal Reserve has held its federal funds rate at 0-0.25 percent since December 2008.
    Although economic activity decelerated in the first half, the Federal Reserve said fixed investment by business continued to advance and household spending was rising, albeit at a somewhat slower pace than earlier in the year. The housing sector remains depressed and unemployment remains elevated.
    The Federal Reserve said it expected the unemployment rate to decline only slowly towards levels that it considers consistent with its dual mandate, which calls for an inflation rate of 2 percent and maximum employment. The target for the unemployment rate has never been published but is seen to be around 6 percent.
    The Federal Reserve said it expects inflation to be around or below its 2 percent target in the medium term. Inflation was unchanged at 1.5 percent in June while GDP expanded 2.2 percent in the second quarter over the same 2011 quarter for an annual rate of 1.5 percent.


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