Fed: Jobs market concerns linger
Published 12:00 am Thursday, July 31, 2014
WASHINGTON — The Federal Reserve on Wednesday affirmed its commitment to stimulate the economy in a policy statement that said labor market conditions remained a “significant” distance from good health.
The Fed announced, as expected, that it would reduce its monthly bond purchases to $25 billion, but it gave no indication that recent signs of stronger growth had altered its determination to hold short-term interest rates near zero well into 2015.
Instead, the Fed emphasized its concern about the millions of Americans who still cannot find jobs. While the unemployment rate fell to 6.1 percent in June, “a range of labor market indicators suggests that there remains significant underutilization of labor resources,” the Fed said in a statement released after a two-day meeting of its policymaking committee.
The emphasis on unemployment was particularly striking as it came just hours after the government reported the economy recovered in the second quarter after a winter slump. The Fed’s statement acknowledged that growth had “rebounded,” but its tone was measured. It described the chances of faster growth as roughly balanced with the chances the expansion would slow down.
The statement gave little ground to critics who worry that the Fed is ignoring signs of rising inflation, although it said Fed officials had become less concerned that inflation would continue to run below the desired 2 percent annual pace.
Charles Plosser, president of the Federal Reserve Bank of Philadelphia, was the sole vote in dissent, citing his concern about the Fed’s intent to maintain short-term interest rates near zero for “a considerable time” after the Fed ends the expansion of its bond holdings.
The Federal Reserve has already said that it plans to stop buying more bonds in October after making a penultimate purchase in September. The looming question is how long it will then wait to start raising interest rates.
Officials are struggling to reconcile an unusual set of economic trends: The economy continues to grow relatively slowly even as unemployment continues to decline relatively quickly. The government estimated on Wednesday that the economy expanded at a 1 percent annual rate in the first half of 2014, as stronger growth in the second quarter offset a brief contraction during the first quarter. The unemployment rate fell by half a percentage point over the same period, and by 1.4 percentage points over the last year.