Fed lowers U.S. economic outlook, open to further stimulus

Nov 11, 2011  |  by
WASHINGTON, Nov. 2 (Xinhua) -- The U.S. Federal Reserve on Wednesday downwardly revised its projection of the country's economic outlook and reaffirmed openness to further stimulating policy if needed.

The economy is expected to grow by 1.6 to 1.7 percent in 2011 and 2.5 percent to 2.9 percent next year, said the U.S. central bank in an update projection released at a press conference after the meeting of the Federal Open Market Committee (FOMC), the interest rate policy making body of the Fed.

The economic growth remains "frustratingly slow" although it strengthened in the third quarter, Fed Chairman Ben Bernanke told reporters.

He said the central bank is looking for growth and the job market is expected to improve gradually over the next two years, but at a sluggish pace.

In its June projection, the Fed said that the economy would increase by 2.7 percent to 2.9 percent in 2011, and 3.3 percent to 3.7 percent in 2012.

In Wednesday's forecast, the central bank saw the unemployment rate will stay at 9.0 percent to 9.1 percent in 2011, and 8.5 percent to 8.7 percent in 2012. These numbers are worse than the June projection, which expected the widely watched unemployment rate to fall to 8.6 percent to 8.9 percent in 2011, and 7.8 percent to 8.2 percent in 2012.

In a statement released before the press conference, the Fed said that "economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year."

However, "recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated," said the Fed.

The U.S. unemployment rate stayed at 9.1 percent in September, with 14 million Americans out of work.

The Fed continued to see "a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually."

Based on information received since the FOMC met in September, the Fed saw "household spending has increased at a somewhat faster pace in recent months." Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed.

The central bank also noted longer-term inflation expectations have remained stable.

As a result of the current economic performance, the Fed decided to keep its current programs to help the economy grow.

In its previous meetings, the FOMC decided to keep the interest rate at the historic low level of zero to 0.25 percent and to extend the average maturity of its holdings of government securities, a policy called "operation twist" to keep the low interest rate environment in order to boost the recovery.

The Fed expressed Wednesday that it is open to take new stimulus if the economic conditions deteriorate in the future.

"We remain prepared to take action as appropriate to make sure the recovery continues," Bernanke said.

But he refused to provide more details about the new measures.

The Fed had implemented two rounds of government securities buying program, known as quantitative easing policy after this round of financial crisis burst in 2008.

Many economists criticized that the Fed's monetary polices are not effective.

Bernanke defended himself Wednesday by saying that the economy and financial market conditions would have been worse if without the Fed's actions.

The U.S. economy grew only 0.9 percent in the first half of this year before rising 2.5 percent in the third quarter. The market held that the growth rate in the fourth quarter would be around 2.5 percent and 3 percent, a pace not fast enough to bring down the high unemployment rate.

To promote faster economic growth and create more jobs has become the top priority of U.S. macroeconomic policy makers.




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