July 31, 2014 in Business

Federal Reserve mostly positive on economy, but cites job market

Martin Crutsinger Associated Press
 
Associated Press photo

Federal Reserve Chair Janet Yellen speaks July 2 at the International Monetary Fund in Washington. A statement Wednesday from the Fed suggested it wants to see more improvement before it starts raising its key short-term interest rate.
(Full-size photo)

Purchases set to end

Though the Fed’s statement set no specific date for the Fed’s bond purchases to end, Janet Yellen told Congress this month that they would likely end at the October meeting with a final $15 billion cut. That would imply a further $10 billion reduction at the Fed’s next meeting in September.

WASHINGTON – The Federal Reserve offered a mixed message on the U.S. economy Wednesday: Growth is strengthening, and the unemployment rate is steadily falling. Yet by some measures, the job market remains subpar.

A statement the Fed issued after a two-day policy meeting suggested it wants to see further improvement before it starts raising its key short-term interest rate. It offered no clearer hint of when it will raise that rate.

Instead, the Fed reiterated its plan to keep short-term rates low “for a considerable time” after it ends its monthly bond purchases. The Fed said it will slow the pace of its purchases by another $10 billion to $25 billion a month. The purchases, which have been intended to keep long-term borrowing rates low, are set to end in October.

Most economists think a rate increase is about a year away despite a strengthening economy. The unemployment rate has dropped to 6.1 percent. At the start of last year, it was 7.9 percent. The Fed revised the wording of its previous statement to note that while the unemployment rate has dropped steadily, the job market is still struggling in other ways. It didn’t specify what it meant. But Chair Janet Yellen expressed concern to Congress this month about stagnant wage growth, many part-time workers who can’t find full-time jobs and the proportion of the unemployed who have been out of work for more than six months.

The Fed also tweaked its statement to say inflation had risen closer to its 2 percent target. The statement said concerns that inflation would persistently run below the Fed’s 2 percent target had “diminished somewhat.” But it expressed no concerns about the slight acceleration in prices.

The Fed’s action Wednesday was approved on a 9-1 vote, with Charles Plosser, president of the Fed’s Philadelphia regional bank, dissenting. The statement said Plosser objected to reiterating that the Fed’s key short-term rate would likely remain at a record low near zero “for a considerable time” after its bond purchases end.

Plosser felt that language did not “reflect the considerable economic progress that has been made,” the statement said.

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