The U.S. central bank says it sees the American economy growing at a slower pace than it thought just two months ago, and that the country's jobless rate will remain high through 2014.
The Federal Reserve said Wednesday that it now expects the economy, the world's largest, will advance a maximum of 2.4 percent this year, down a half percentage point since its April projection. It said the unemployment rate could remain at the 8.2 percent rate recorded in May, perhaps a bit lower, and only gradually drop over the next two years.
Federal Reserve chairman Ben Bernanke said policy makers dropped their economic forecast because of slowed hiring by U.S. employers, weaker U.S. consumer spending and the effect of the governmental debt crisis in Europe's euro currency bloc, a prime market for American exporters.
“In light of these developments, committee participants have generally marked down their projections for economic growth, but most still see the economy as expanding at a moderate pace over coming quarters and then picking up gradually. Based on their projections for economic growth, (Federal Open Market Committee) participants foresee slower progress on reducing unemployment than they did in April. Committee participants' projections for the unemployment rate in the fourth quarter of this year have a central tendency of 8.0 to 8.2 percent declining to 7.0 percent to 7.7 percent in fourth quarter of 2014.”
With the slowing growth, the Fed opted to extend one of its stimulus measures in a new effort to boost the country's sluggish economy.
The policy makers decided to expand a program to replace short-term government bonds with longer-term notes, shifting another $267 billion through the end of 2012. The central bank said the renewed policy — which had been set to expire at the end of June — “should put downward pressure on longer-term interest rates” to increase more borrowing, spending and economic growth.
The central bank, however, did not sanction any new stimulative measures. Bernanke said the bank is “prepared to take further action as appropriate to promote a stronger economic recovery.” The central bank renewed its plan to keep its benchmark lending rate at between zero and a-quarter-of-one-percent at least through late 2014.
The central bank said the American economy has been expanding “moderately” this year, but that growth in the country's labor market has slowed in recent months. It also said U.S. consumer spending — which drives about 70 percent of the national economy — “appears to be rising at a somewhat slower pace” than earlier in the year.
The Federal Reserve said inflation in the U.S. has declined, a reflection of the fact that world oil prices have dropped, cutting the cost of gasoline for motorists.
American employers — the heart of the U.S. economy — have sharply cut back their hiring in the last two months. The country's jobless rate edged higher to 8.2 percent in May after falling during late 2011 and the early months this year. Meanwhile, a government report this week showed that the number of job openings in the country is falling.
Republican presidential challenger Mitt Romney has made the state of the American economy — and President Barack Obama's oversight of it — the focal point of his campaign to win the White House in the November election. Surveys show many voters do not think Mr. Obama has improved the economy enough during his three-and-a-half years in office. The president has repeatedly noted that the economy is emerging from the depths of the country's worst downturn since the 1930s, but not at the speed he would like.
