Economic Growth this Year "Considerably" Slower than Expected
Information received since the Federal Open Market Committee
(FOMC) met in June indicates that economic growth so far this year has been “considerably slower” than the Committee had expected. The FOMC released a statement after its August 9 meeting saying it plans to hold interest rates at between 0% and 0.25%, or “exceptionally low levels”, at least through mid-2013.
“Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up,” the Committee statement said. “Household spending has flattened out, investment in non-residential structures is still weak, and the housing sector remains depressed.”
The FOMC met one day after the stock market slumped 635 points, and three business days after Standard & Poor's (S&P) downgraded the U.S. credit rating from AAA to AA+.
"This of course means that credit unions should not expect rising short-term interest rates in the near future," said Bill Hampel, chief economist for the Credit Union National Association
(CUNA), after the FOMC issued its post-meeting statement. "The Fed is putting market participants and policymakers on notice that it is fully aware that economic performance has recently been subpar, and that it will not do anything to deter growth until the economy has established much stronger legs." (CUNA.org/newsnow 8/10/11)
The FOMC, which seeks to foster maximum employment and price stability, "now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the committee judges to be consistent with its dual mandate."
The Committee also anticipates that inflation will settle, over coming quarters, as the effects of past energy and other commodity price increases dissipate further. However, the FOMC will continue to pay close attention to the evolution of inflation and inflation expectations.
"To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Federal Open Market Committee decided today to keep the target range for the federal funds rate at 0 to 0.25 percent at least through mid-2013." - FOMC
The Committee currently expects that economic conditions -- including low rates of resource utilization and a subdued outlook for inflation over the medium run -- are likely to warrant “exceptionally low” levels for the federal funds rate for at least two more years.
The FOMC “discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability”, and “will continue to assess the economic outlook in light of incoming information” and employ those tools when appropriate.
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