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Fed, more upbeat about economy, leaves monetary policy unchanged

The Federal Reserve, providing a somewhat more upbeat assessment of the economy, on Tuesday kept the benchmark short-term interest rate near zero but did not take any new steps to boost financial markets or the economy.

Top Fed policymakers, at the conclusion of their final scheduled meeting of the year, said the latest data indicate the economy "has been expanding moderately" and "point to some improvement in overall labor market conditions."

However, the Fed again warned that "strains in global financial markets," namely the threat from the European debt crisis, "continue to pose significant downside risks to the economic outlook."

Additionally, policymakers said that although consumer spending was growing, increases in business investments, one of the bright spots of the recovery, appear to be moderating and the housing market remains depressed.  

As expected, the Fed reaffirmed its pledge, first made in August, to maintain the federal funds rate near zero until at least mid-2013. This benchmark rate, which influences many types of loans, has been held at rock-bottom levels since the depths of the recession in December 2008.

Some people on Wall Street were hoping that the central bank would signal its intentions to make additional moves to stimulate the economy in light of the high unemployment rate, 8.6% in November.

As in the last meeting in early November, one Fed official, Charles Evans of the Federal Reserve Bank of Chicago, dissented from Tuesday's decision to stand pat on policy, saying that he thought the central bank should be doing more.

Many analysts believe that Fed Chairman Ben S. Bernanke and his colleagues will soon announce a new communications strategy that would include a forecast for the federal funds rate, possibly along with targets for inflation and unemployment, the Fed's chief economic concerns. By giving more information about its goals and where short-term rates are likely to be further out, the Fed's new communications plan could influence investors' actions and the broader economy.

The Fed’s next policy meeting is scheduled for Jan. 24-25.

-- Don Lee

 
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