Thu, Dec 15, 2011 - Page 10 News List

Federal Reserve sees ‘some’ good amid euro risks

SMALL SIGNS OF HOPE:Improvement in the job market, solid consumer spending and stabilizing inflation were viewed as rays of hope for the US

Reuters, Washington

The US Federal Reserve on Tuesday warned that turmoil in Europe presents a big risk to the US economy, leaving the door open to possible further steps to boost growth even though it noted a somewhat stronger labor market.

The central bank said the US economy was “expanding moderately” despite an apparent slowing in the world economy.

However, while there had been “some” improvement in the job market, unemployment remained elevated and housing depressed, it said.

“Strains in global financial markets continue to pose significant downside risks to the economic outlook,” the Fed said after a policy meeting, alluding to pressures stemming from the debt crisis in the eurozone, which has raised concerns about tighter credit in the US.

The Fed’s statement was little changed from the one made after its last meeting early last month, although the US central bank pinned uncertainty for the US economy more squarely on events in Europe.

While last month it said risks to the outlook included global strains, on Tuesday it cited only the risk of volatility abroad.

Most economists have said the Fed’s next meeting on Jan. 24 and Jan. 25 would be the more likely occasion for any new moves to add to the US central bank’s already extraordinary push to bring down borrowing costs and help growth.

Tuesday’s statement touched only lightly on signs of improvement in the economy’s performance. The Fed offered no new guidance on the changing way it communicates its policies to financial markets; US Federal Reserve Chairman Ben Bernanke has made increased transparency a hallmark of his six years in charge of the central bank.

It also repeated that it expects inflation to settle at levels at or below those consistent with its price stability mandate.

For a second time running, Chicago Federal Reserve President Charles Evans was against holding policy steady, saying he favored additional easing now.

The US central bank has held overnight interest rates near zero since December 2008 and has bought US$2.3 trillion in government and mortgage-related bonds in a further attempt to stimulate a robust recovery.

Fed officials are divided among those who think high unemployment and sluggish growth require more action and those who view the central bank’s already aggressive efforts as bordering dangerously on an invitation to inflation.

The jobless rate tumbled 0.4 percentage points to 8.6 percent last month, factory activity has quickened and businesses are restocking depleted shelves.

Consumer spending also appears reasonably solid, although a softer-than-expected report on last month’s retail sales on Tuesday offered a hint that spending could be flagging.

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