Fed Sits Tight But Signs Of Increasing Concern Are Building Toward Possible Fed Action

Wednesday, August 01, 2012 23:06
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Fed Sits Tight But Signs Of Increasing Concern Are Building Toward Possible Fed Action

Tags: economy | Federal Reserve | interest rates

Fresh notes of concern were evident in the Fed’s statement after its regular meeting July 31 and August 1. Disappointing job growth, slow growth in the second quarter, and lower inflation incited the Fed to give stronger signals it will act once again to stimulate economic growth.

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The statement following the meeting was virtually unchanged from the previous meeting’s following statement. This may mean the Fed is waiting for the next unemployment report before taking action. But there was also a statement that the economy had decelerated somewhat over the first half of the year.
 
This added segment was a departure that has analysts thinking the Fed may act sooner than later. The statement following the previous meeting said that growth had been expanding moderately.
 
Eleven of the 12 Fed officials voted to maintain current policy. Many had hoped the Fed would make a stronger statement or, in fact, go ahead and take stimulus action. Talk of taking pre-emptive measures as Alan Greenspan did during his term as Fed chairman had arisen.
 
Apparently, this Fed still wants to see more data before taking steps to boost the recovery. The next meeting is slated for September 12 – 13. Some analysts say if the Fed does choose to act in the September meeting, it should focus more on those actions and less on communicating intentions.
 
The case for acting over communicating is that the economy has reached the point where conventional Fed intervening is losing its effectiveness. Analysts feel further communications will only continue the wait-and-see approach and deny the economy the push it needs from whatever stimulus the Fed might take.

 

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