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Fed Slightly Sunnier About Economy, but Still Cautious Fed Slightly Sunnier About Economy, but Still Cautious Fed Slightly Sunnier About Economy, but Still Cautious Fed Slightly Sunnier Abou...

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Economy / ECONOMY

Fed Slightly Sunnier About Economy, but Still Cautious

Federal Reserve Chairman Ben Bernanke testifies on Capitol Hill last month.(AP Photo/Carolyn Kaster)

March 13, 2012

The Federal Reserve issued a slightly sunnier economic outlook on Tuesday following a single-day meeting of its policy-setting committee, but remained cautious about the overall state of the recovery, echoing its previous statement that the U.S. economy was “expanding moderately.” As expected, the Fed left its policy unchanged. 

The strong February jobs report released on Friday, the third showing monthly job growth in excess of 200,000, caused many to predict the central bank would issue a rosier economic outlook on Tuesday. It did, noting easing strains in global financial markets and the continued advancement of household spending and fixed investment by businesses. Since the Federal Open Market Committee last convened in January, the Greek debt crisis has moved further from the brink of catastrophe and European Central Bank President Mario Draghi said in a Tuesday speech that there were “continued signs of stabilization” in the economy, Bloomberg reports.

But the Fed was far from trumpeting the recovery. It called the housing sector “depressed” and cautioned that although the global financial strains were easing, they still pose “significant downside risks” to the U.S. economy. FOMC also warned that inflation will temporarily rise due to the recent increase in oil and gasoline prices, despite its stable longer-term expectations for inflation. And although the unemployment rate “declined notably,” the Fed noted that it remains high.

 

The Fed repeated its pledge to keep the federal-funds rate at rock-bottom levels through late 2014, a move that drew dissent from Richmond Federal Reserve President Jeffrey Lacker, who said economic conditions were unlikely to warrant such a move.

The door to further Fed action remains open, with analysts at Deutsche Bank saying it is likely to come at FOMC's two-day meeting in late April. “[P]olicymakers are expected to cast a verdict on possible extension or augmentation of Operation Twist, which expires in late June,” they said. And Fed Chairman Ben Bernanke last month noted before the House Financial Services Committee that there were “different signals” coming from the labor market—which has had three strong monthly employment reports in a row—than from indicators of final demand and production, which also indicated that the Fed could see justification for action.

Unlike the committee’s previous meeting, Bernanke did not hold a news conference following the statement’s release, nor will committee members’ individual forecasts be released. He will speak following the April meeting, another reason analysts say action is more likely then.

The minutes from Tuesday’s meeting will be released on April 3.

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