WASHINGTON (AP) — The Federal Reserve said Wednesday that the U.S. economy is losing strength and repeated a pledge to take further steps to stimulate growth if the job market doesn’t show sustained improvement.
The Fed took no new action after a two-day policy meeting. But it acknowledged in a statement released after the meeting that economic activity had slowed over the first half of the year. It also said unemployment remains elevated and consumer spending is rising at a somewhat slower pace.
Stocks indexes turned slightly lower after the Fed didn’t announce any new measures to stimulate the economy. The Dow Jones industrial average was down only 5 points roughly an hour after the Fed’s announcement at 2:15 p.m. It was up 20 points immediately before.
The yield on the 10-year Treasury note increased to 1.53% after the Fed’s statement was released.
The statement was nearly identical to the one issued after the Fed’s last meeting, June 19 and 20, except for language noting slower growth. The Fed repeated that strains in the global market pose a significant risk to the U.S. economy, the housing market is improving but remains depressed and inflation remains tame.
Policymakers also repeated their plan to hold short-term interest rates at record-low levels until at least late 2014.
Most economists say the Fed could launch another program of buying government bonds and mortgage-backed securities at its September meeting if the economy doesn’t show improvement. The goal of the program, known as quantitative easing, would be to drive long-term rates, which are already at record lows, even lower.
Economists will eagerly await what Chairman Ben Bernanke’s has to say at an annual economic conference later this month in Jackson Hole, Wyo.
“The Fed took no action at this meeting but strongly hinted that there will be further easing action at the next meeting in September,” said David Jones, chief economist at DMJ Advisors.
Jones noted that in its pledge to provide further support, the Fed changed the phrasing to say the central bank “will provide additional accommodation as needed to promote a stronger economic recovery.” In the previous statement in June, the central bank simply said that it “is prepared” to take further action.
The statement was approved on an 11-1 vote. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented for a fifth time this year. He objected to the Fed including language in the statement about keeping short-term rates low until late 2014.
U.S. economic growth slowed to an annual rate of just 1.5% from April through June, down from a 2% rate in the first quarter.
Fed officials have signaled in speeches their concern about job growth and consumer spending. Bernanke told Congress two weeks ago that the Fed is prepared to take further action if unemployment stays high.
Worries have also intensified the U.S. economy will fall off a “fiscal cliff” at the end of the year. That’s when tax increases and deep spending cuts will take effect unless Congress reaches a budget deal. A recession could follow, Bernanke has warned.