WASHINGTON — The Federal Reserve sketched a bleaker outlook Wednesday for the economy, which it thinks will grow much more slowly and face higher unemployment than it had estimated in June.
The Fed’s gloomier forecast shows that the recovery from the recession has continued to fall short of expectations. Some economists said it makes the Fed more likely to act further to try to boost the economy, though probably not until early next year.
One option would be a program similar to the Fed’s $600 billion in Treasury bond purchases, which it completed in June. Some economists think the Fed could buy mortgage-backed securities instead, which could more directly support the depressed housing market by lowering loan rates.
Speaking at a news conference Wednesday, Chairman BenBernanke said that if conditions worsen, the Fed would consider buying more mortgage-backed securities . He declined to specify what would trigger such a move.
“Bernanke did not go out of his way to dampen growing expectations” that another round of purchases is coming, said Dana Saporta, an economist at Credit Suisse. “If anything, he stoked those expectations.”
Still, a more aggressive effort to boost the economy would likely face resistance within the Fed. Ian Shepherdson of High Frequency Economics said the economy would have to deteriorate before the Fed would launch another round of purchases.
The Fed now predicts the economy will grow no more than 1.7 percent for 2011. For 2012, it foresees growth of about 2.7 percent. Both forecasts are roughly a full percentage point lower than its June forecast.
The Fed sees unemployment averaging 8.6 percent by the end of next year. In June, it had predicted unemployment would drop next year to as low as 7.8 percent. The rate is now 9.1 percent.
Those growth rates are far too low to drive down unemployment.
At his news conference, his third this year, Bernanke acknowledged that the pace of growth will likely remain “frustratingly slow.”
“We remain prepared to take action as appropriate to make sure the recovery continues,” he said.
Even so, the Fed said the economy had improved since nearly stalling in the spring. As a result, it’s putting off any new actions so it can gauge the impact of steps it’s already taken.
Fed policymakers made the announcement after a two-day meeting.View Entire Story
By John Solomon
How the government's punishing of the exposure of official wrongdoing can linger for years
Independent voices from the TWT Communities
A carefully guided tour through the confusing world of modern bookselling and publishing.
Columns from Voices around the World talking about the events, people, politics and social issues that concern us wherever, and whoever, we are.
Weekly agitation from a columnist who many believed to be one of the least likely to become known as a Conservative Republican.
Happiness is attainable. Morning to night. I love to teach, deal with folks that have an issue and really wish to tackle it and write.
Benghazi: The anatomy of a scandal
Vietnam Memorial adds four names
Cinco de Mayo on the Mall
NRA kicks off annual convention