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Fed Sticks With the Status Quo

The Federal Reserve says the economy is still weak, but it's keeping the current monetary policies in place...for now.
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The Federal  Reserve said Wednesday it has decided not to take any new action to support the economy, but added that if conditions worsen, it will be ready to make changes.  

In the full statement released by the Fed, the Federal Open Market Committee said that new information suggests “economic activity decelerated somewhat over the first half of this year”—identifying the fairly stagnant unemployment rate at 8.2%, a depressed housing market, and slowing rates of household spending. 

“The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually,” the statement said. The Fed said it plans to continue implementing low interest rates to keep inflation down and extend its “Operation Twist” program. 
 
“They did absolutely nothing here. It suggests there is a lot of internal debate going on in the Fed,” Steven Ricchiuto, chief economist at Mizuho Securities, told Reuters

The statement did hint, however, at taking more influential action later in the year. 

“The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” 
 
After the announcement, stocks fell slightly Wednesday afternoon.  

“The market was hoping for more news on QE or a longer time frame for not raising rates,” Nicholas Colas, chief market strategist at the Convergex Group, told Reuters. “It was very status quo at a time when people are saying the economy is getting worse.”

IMAGE: AP Photo/Manuel Balce Ceneta
Last updated: Aug 1, 2012

ABIGAIL TRACY

Abigail Tracy is a staff reporter for Inc. magazine. Previously, she worked for Seattle Metropolitan magazine and Chicago magazine.




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