Fed says US economy has slowed, takes no new steps

(AP:WASHINGTON) The Federal Reserve said Wednesday that the economy is losing strength and repeated a pledge to take further steps if the job market doesn't show sustained improvement.

The Fed took no new action after its two-day policy meeting. But it acknowledged that economic activity had slowed over the first half of the year, unemployment remains elevated and consumer spending has weakened.

Policymakers 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 bond-buying program at its September meeting if the economy doesn't show improvement. The goal of the program would be to drive down long-term interest rates and encourage more borrowing and spending.

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.

The statement was nearly identical to the one issued after the Fed's June meeting, expect 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.

U.S. economic growth slowed to an annual rate of just 1.5 percent from April through June, down from a 2 percent pace in the first quarter.

Fed officials have signaled in speeches their concern about job growth and consumer spending. And Chairman Ben Bernanke told Congress last month that the Fed is prepared to take further action if unemployment stays high.

Worries have also intensified about Europe's debt crisis and whether 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.

The U.S. Labor Department releases the July jobs report on Friday. Economists forecast that U.S. employers added 100,000 jobs in July. That would be only slightly better than the 75,000 a month from April through June and still down from a healthy 226,000 average in the first three months of the year. The unemployment rate is expected to stay at 8.2 percent.

The Fed has already pursued two rounds of purchases of Treasury bonds and mortgage-backed securities.

The Fed has also extended a program called Operation Twist. Under this program, the Fed sells short-term Treasurys and buys longer-term Treasurys. The goal is to lower longer-term interest rates.

Even if the Fed launched a third round of bond purchases, few think that further lowering long-term rates would provide much benefit to the U.S. economy. Most businesses and consumers who aren't borrowing now aren't likely to change their minds if rates slipped a bit more.

The yield on the benchmark 10-year Treasury note is already just above its record low of 1.39 percent, which it touched last week. The national average rate for a new-car loan barely tops 3 percent. And the average on a 30-year fixed-rate mortgage fell below 3.5 percent last week for the first time on records dating back 60 years.

Some regional Fed bank presidents have expressed concern that expanding the Fed's investment portfolio beyond its current record $2.9 trillion to try to lower rates more would heighten the risk of high inflation later.

Some analysts have also suggested that the Fed might be reluctant to act aggressively as the November election nears, out of concern it could be seen as affecting the vote.

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