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Fed stands pat on policy; Bernanke press conference next

November 2, 2011 | 10:25 am

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The Federal  Reserve held policy steady after a two-day meeting, citing signs of improved economic growth.

The Fed’s post-meeting statement Wednesday was as expected. Most economists figured the central bank wouldn’t announce any new initiatives to bolster growth.

More interesting commentary may come at Fed Chairman Ben S. Bernanke’s press conference, expected to begin at 11:15 a.m. PDT. It will stream live here.

The Fed’s statement said that recent data indicate that “economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year,” such as the after-effects of Japan’s massive earthquake in March.

But policymakers also said there were “significant downside risks to the economic outlook, including strains in global financial markets” -- an apparent reference to Europe’s ongoing debt crisis.

The Fed took two major steps in recent months to help the economy. In August the central bank indicated that  short-term interest rates were likely to remain near zero for another two years, a view it reiterated in Wednesday’s statement.

In September the Fed decided to shift more of its massive securities portfolio toward longer-term Treasury bonds to pull down long-term interest rates in general.

One Fed official -- Chicago Fed President Charles Evans -- dissented at Wednesday’s meeting, according to the statement. Evans “supported additional policy accommodation at this time,” the statement said, without indicating what kind of action he wanted.

Wall Street slipped after the Fed meeting, giving up part of an early rally that followed two days of heavy selling. The Dow Jones industrial average was up 115 points, or 1%, to 11,773 at about 10:25 a.m. PDT.

Here is the full text of the Fed statement:

Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.

RELATED:

Construction spending and manufacturing growing -- slightly

Savings rate falls as spending outpaces income growth

Weekly jobless claims dip but remain high

-- Tom Petruno

Photo: The Federal Reserve building in Washington. Credit: J. Scott Applewhite / Associated Press

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