Wednesday, August 1, 2012

Fed statement FOMC meeting august 1 2012

FOMC meeting august 1 2012 : Fed Bernanke speech august 1 2012 : The Federal Reserve announced no new steps on Wednesday to deal with the sluggish economy.

It reiterated a June statement that it intends to keep interest rates low through 2014, but declined to take major actions to ease credit such as a new round of purchases of securities. The Fed will continue to monitor the situation ahead of its next meeting in September.

On the economy, the Fed said "economic activity decelerated somewhat over the first half of this year."

This is roughly consistent with its June 20 statement, where the Fed said the economy “has been expanding moderately this year” but added that “growth in employment has slowed in recent months, and the unemployment rate remains elevated.”

As in June, the Fed said that the sluggish growth warranted "exceptionally low levels for the federal funds rate at least through late 2014."

The statement came at the end of a two-day monthly meeting of the Federal Open Market Committee (FOMC). The Fed governors will meet again in September where it could take further action.

The announcement could be bad news for President Obama, who is hoping for an upturn in stock markets and the economy before the election.

In the wake of the 2008 financial crisis, the Fed instituted two rounds of quantitative easing (QE), a form of unconventional monetary stimulus. With interest rates already at historic lows, QE allows the Fed to ease credit further, in the hope of provoking business investment, spending and growth

The Fed in November 2010 announced its second round of QE, buying $600 billion in Treasury bonds over eight months in a bid to boost the sluggish recovery by expanding the money supply.

This June, the Fed announced a six-month extension of "Operation Twist," a less ambitious way to reduce borrowing rates and boost the economy. It committed to selling $267 billion of shorter-term securities and buying the same amount of longer-term debt to do so.
At that time, Bernanke said a third round of quantitative easing remained an option for the central bank. “I don't think they should be launched lightly,” he said, however.

The Fed announcement comes just two days before the July jobs report. As it stands, there was just a 1.5 percent rise in gross domestic product in the second quarter — and the unemployment rate stuck above 8 percent.

Private-sector employers added 163,000 jobs in July, a slightly slower pace than June but a sign that the labor market is showing signs of life, ADP Employer Services reported on Wednesday.

Democrats this month had been pushing the Fed to do more to help the economy—the biggest millstone around the neck of the Obama reelection campaign.

In a July 17 hearing, Sen. Charles Schumer (D-N.Y.) urged Federal Reserve Chairman Ben Bernanke to act because Congress is too deadlocked to stimulate the economy.

“Given the political realities ... I’m afraid the Fed is the only game in town, and I would urge you to take whatever actions you think will be most helpful,” he said. “Get to work, Mr. Chairman.”

Bernanke vowed not to play politics.

“We will act in an apolitical, nonpartisan manner to do what’s necessary for the economy,” he said.

Republicans have warned the Fed against a QE3.

Opponents of the Fed’s easy money policies argue that the Fed is tempting price inflation, while punishing savers to help debtors and speculators. The Fed action makes refinancing mortgages more attractive and tends to boost stock values, while leaving rates on safer investments like certificates of deposits extremely low.

The rates also fuels government spending by allowing the government to borrow money more cheaply to finance what many conservative denounce as waste.

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