Arab Today, arab today fed foresees weak us growth through 2014
Last Updated : GMT 16:13:29
Arab Today, arab today
Arab Today, arab today

Fed foresees weak US growth through 2014

Arab Today, arab today

Arab Today, arab today Fed foresees weak US growth through 2014

Washington - AFP

The Federal Reserve cut its US growth forecast Wednesday and said that with business investment and the housing sector depressed, it expected to keep interest rates near zero for another three years. Despite an upturn late last year, the Fed said ongoing economic weaknesses and strains in global financial markets mandated continued easy-money policies. \"We continue to see headwinds coming from Europe,\" Fed chairman Ben Bernanke said in a news conference a meeting of the policy-setting Federal Open Market Committee. \"I don\'t think we\'re ready to declare that we have entered a strong phase at this point.\" Bernanke gave no hints as to whether the Fed was ready to add more stimulus to the economy, but left the door open if growth fails to pick up and unemployment stays high. \"We need to be thinking about ways in which we can provide further stimulus if we don\'t get some improvement in the pace of recovery,\" he said. The Fed said that while household spending and consumer confidence had picked up, the economy was still being held back by tight credit, slow investment by businesses, and the lack of recovery in the housing market. The Fed cut its growth projection for this year to 2.2-2.7 percent, about one-quarter percentage point below the previous forecasts. For 2013, it sees growth edging up to 2.8-3.2 percent, and then accelerating to above 3.3 percent in 2014. But with the prospects for inflation low, the FOMC said in a statement that it expects to keep its key interest rate at exceptionally low levels \"at least through late 2014\". The rate has stood at a rock-bottom 0-0.25 percent for three years, and the Fed had previously projected it would stay at or near that point only through the middle of 2013 before moving higher. The FOMC also for the first time set an explicit inflation target, at 2.0 percent -- \"basically the number that most central banks use,\" Bernanke said -- past which it could begin tightening policy. But Bernanke insisted that the Fed would not place controlling inflation over boosting employment in its priorities. \"We treat them symmetrically,\" he said. \"We\'re not absolutists.\" The FOMC modestly cut its unemployment rate projections to as low as 8.2 percent at the end of this year and 7.4 percent at the end of 2013. Bernanke stressed those levels remained unhealthily high. \"If inflation did go above target by a modest amount, we would certainly try to get it back down to target. But if unemployment were very high, that would lead us to be more cautious and slower in returning to target.\" The Fed released for the first time individual forecasts of interest rate shifts by the FOMC members and alternates, a move aimed at boosting clarity over the central bank\'s views of the economy. Most predicted that rates would stay below 2.0 percent through the end of 2014, while three clearly saw the possible need to raise rates this year and six in 2013. Overall, though, the FOMC was characterized as \"very dovish\" by analysts. They said the panel left the door open for a possible third installment of its \"QE\" qualitative easing program, which entails buying in bonds to inject more money into the economy and push down lending rates. \"The translation is that a QE3 program is still on the table and that incoming data will dictate whether it moves from the FOMC\'s meeting table to its balance sheet,\" said Patrick O\'Hare of Briefing.com. Bernanke confirmed that the Fed has been somewhat frustrated by the limited impact of its previous stimulus moves. Despite bringing down mortgage rates to record lows, that has not turned into a surge in the real estate sector, he said. \"We are in a difficult situation in terms of the effectiveness of policy tools,\" he said. \"I would not say, though, that we\'re out of ammunition. I think we still have tools. But we need to further analyze and study those tools and try to make comparisons in terms of effectiveness, risks, and the like.\"  

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