The Federal Reserve has cut its US economic growth forecasts for this year and 2014 as it unexpectedly left unchanged its massive monetary stimulus.
The economy was expected to grow between 2.0 and 2.3 per cent this year, instead of the 2.3-2.6 per cent range seen three months ago, the Fed said.
For 2014, gross domestic product growth was trimmed to 2.9-3.1 per cent, from the June estimate of 3.0-3.5 per cent.
The central bank’s unemployment outlook improved slightly for this year and the next.
The 2013 jobless rate was estimated between 7.1 per cent and 7.3 per cent, the Fed said, while in 2014 it would fall to 6.4-6.8 per cent.
The central bank shaved a tenth point off both years’ low-end estimate.
Tame inflation forecasts continued to remain well below the Fed’s 2.0 per cent target for price stability.
The 2013 estimate for core inflation, stripping out food and energy price changes, was unchanged at 1.2—1.3 per cent.
The rate was not expected to climb as high as 2.0 per cent until 2015.
For the first time, the Fed provided forecasts for 2016.
GDP growth would slow to 2.5-3.3 percent, while the unemployment rate would fall to 5.4-5.9 per cent.
Inflation in 2016 was projected at 1.90-2.0 per cent.
According to the updated forecasts, most Fed policy makers see the first hike in the federal funds rate in 2015.
The Federal Open Market Committee said, after a two-day monetary policy meeting, it was leaving its key rate at an ultra-low 0-0.25 percent, where it has been since 2008.
The policy makers said they would keep it in this exceptionally low range, where it has been since late 2008, as long as the unemployment rate remains above 6.5 per cent and inflation does not threaten.
The first time the jobless rate was projected to come in below that threshold is in 2015, when the Fed estimates the rate will fall to 6.2 per cent or lower.
Moderate growth
At the conclusion of the Federal Open Market Committee, US Fed Chairman, Ben Bernanke, said economic growth has generally been proceeding at a moderate pace with continued albeit somewhat uneven improvement in the labour market conditions.
“Of course, to say that the job market has improved does not imply that the current conditions are satisfactory. Notably, at 7.3 per cent, the unemployment rate remains well above the acceptable level.
“Long-term unemployment and underemployment remain high, and we have seen ongoing declines in labour force participation, which actually reflects discouragement on the part of many potential workers as well as longer-term influences, such as the ageing of the population,” he said.
Downside risks
In the committee’s assessment, he said that the downside risks to growth have diminished on net over the past year, reflecting among other factors somewhat better economic and financial conditions in Europe and increased confidence on the part of households and firms in the staying power of the US recovery.
However, the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market.
Stimulus effective
In addition, federal fiscal policy continues to be an important restraint on growth and a source of downside risk, he said.
Responding to questions, Bernanke said his intention is to try to set the policy as appropriate for the economy.
“We are somewhat concerned. I won’t overstate it, but we do want to see the effects of higher interest rates on the economy, particularly mortgage rates, on housing,” he said.
Bernanke argued that stimulus has been effective, saying “My own assessment is that it has been effective.”