Federal Reserve cuts forecast for US economic growth
Published: 20th Jun 2012 19:52:30
The Federal Reserve has cut its forecast for economic growth in 2012 from 2.9% to 2.4%.
It has also predicted a central unemployment rate of up to 8.2%, having forecast up to 8% on 25 April.
The central bank also extended its programme of swapping short-term bonds for long-term ones, known as Operation Twist, until the end of the year.
The idea of the programme is to cut the long-term cost of borrowing for businesses and households.
The programme is worth $267bn (£170bn).
In a news conference, Federal Reserve chairman Ben Bernanke said unemployment was still too high and was going down too slowly.
"We are prepared to take further steps if necessary to promote sustainable growth and recovery in the labour market," he said.
The rise in the central prediction of the unemployment rate came after the jobless rate rose from 8.1% to 8.2% in April.
The Federal Reserve Monetary Policy Committee's decision on Operation Twist was not unanimous, with one of the 12 members voting against it.
The Fed's twisting in a chill economic wind. Its move is a reaction to its fairly gloomy assessment of the state of the US economy. It says the recovery in America is still happening, but it has slowed down, and what's going on in the rest of the world poses "significant risks".
So it's acting to keep long-term interest rates low, which it hopes will encourage people to spend and businesses to take on more workers. It's the extension of a policy that began last September and the jury is out on whether it has worked so far.
In the current political environment the Fed is the only actor with a role. Even if there wasn't a presidential election looming, Congress would still be deadlocked and neither Democratic nor Republican plans stand a chance of being turned into reality. The Fed could print more money (or the modern equivalent) but that would be hugely politically controversial. The bottom line is it's not doing much, but it's the only one doing anything to prop up a faltering recovery.
Jeffery Lacker, the president of the Richmond Regional Fed Bank, had also voted against the previous three decisions.
Operation Twist involves the Federal Reserve buying bonds that have between six and 30 years left on them and selling equal amount of bonds with less than three years left.
"The Fed was more concerned about the economy than they have been and eased by extending Operation Twist," said Allen Sinai, chief executive of Decision Economics in New York.
"They appear to be holding more firepower in reserve in case things get worse."
The central bank's statement pointed out that "growth in employment has slowed in recent months, and the unemployment rate remains elevated".
It kept interest rates unchanged at the level of zero to 0.25%.
There was a muted response on the markets to the Federal Reserve's borrowing decision, although much of the rally earlier in the week was attributed to hopes of more stimulus measures.
Wall Street shares were barely moved by the decision, the yields on US government bonds were also unaffected and the dollar rose against the euro.
"The Fed extending Twist was expected," said Fred Dickson, chief market strategist at DA Davidson and Co in Oregon.
"There may be some disappointment that the Fed didn't provide any strong hints in terms of new policy announcements."
At 13:02:52 in ScotlandThe Labour-led administration on Aberdeen City Council is to press ahead with sending out letters endorsing a No vote in September's independence referendum.
At 13:00:40 in SportConference Premier strugglers Aldershot Town have re-signed Portsmouth defender Dan Butler on a one-month loan deal.
At 13:00:15 in EntertainmentUS President Barack Obama has followed in the footsteps of Justin Bieber and Bradley Cooper, after being interviewed by comedian Zach Galifianakis for his spoof chat show Between Two Ferns.
At 12:59:25 in HeadlinesThe number of Syrian children in need has more than doubled in the past year to 5.5 million, the United Nations Children's Fund (Unicef) says.
At 12:56:27 in BusinessThe insurance regulator, the Financial Conduct Authority (FCA), has promised to crack down on so-called "add-on" policies.
At 12:54:21 in Northern IrelandGCSE and A level exams in Northern Ireland are to remain largely unchanged.
At 12:50:46 in Northern IrelandA murder victim was left in an "unrecognisable state" after one of two attackers jumped on his head "as if it was a trampoline", a court has heard.
At 12:46:59 in SportCaptain Kelly Brown wants to see Scotland reduce their penalty count in their final Six Nations encounter away to Wales on Saturday.
At 12:46:59 in HeadlinesBob Crow, who has died at the age of 52, was an intensively divisive figure. But he was easily the best-known trade unionist in the UK.
At 12:45:25 in EnglandA man who alleges he was sexually abused by MP Nigel Evans has told a court the politician put his hand down his trousers twice during a night out in Soho.
Harvard CitationBBC News, 2012. Federal Reserve cuts forecast for US economic growth [Online] (Updated 20th Jun 2012)
Available at: http://www.ukwirednews.com/news/1435898/Federal-Reserve-cuts-forecast-for-US-economic-growth [Accessed 11th Mar 2014]
News In Other Categories
The price of NHS prescriptions is to rise by 20 pence in April and again next year.
US President Barack Obama has followed in the footsteps of Justin Bieber and Bradley Cooper, after being interviewed by comedian Zach Galifianakis for his spoof chat show Between Two Ferns.
Conference Premier strugglers Aldershot Town have re-signed Portsmouth defender Dan Butler on a one-month loan deal.
A man who alleges he was sexually abused by MP Nigel Evans has told a court the politician put his hand down his trousers twice during a night out in Soho.
With the doors to its brand new £1million training centre officially open, one of the UK's leading apprentice training providers, Bristol based S&B Automotive Academy, is showcasing its world-class facilities by launching a series of foreign student exchanges for the first time in its 41-year history. To get a flavour of what life is like as an apprentice in the UK, the Academy hosted 16 apprentice engineers and bus drivers from the G9 Automotive College in Hamburg, Germany, as part of a Europe-wide vocational training initiative called the ‘Leonardo Programme’ with support from the European Social Fund. In a reciprocal arrangement, S&B will be sending nine apprentices to Germany during February 2012 so that they can get an appreciation of life in the automotive industry on the Continent. A further three German exchange groups are being planned for next year. Designed to assist the development of vocational skills and training across Europe, including work placements for trainees, the Leonardo Programme has a budget of €1.75bn, which is helping to encourage UK organisations to work with their counterparts abroad. In what is expected to be another challenging year for employers in the UK automotive sector, S&B’s Chief Executive, Jon Winter, claims that the exchange initiative will bring many benefits to the Academy and its apprentices: “In a world of global automotive brands, it’s important for our learners to understand the international context of the industry they have chosen to make their career. This new exchange programme will enable apprentices and Academy staff alike to achieve a better understanding of the challenges and opportunities within the automotive arena in Europe. With the Academy’s influence also extending to the USA and Asia, there’s every possibility that this initiative could move further afield in the future.” Continued Winter: “The need for skilled technicians across the world is on the increase and we actively encourage our apprentices to look at broader horizons during their training. Many of them have already learned the phrase ‘Vorsprung durch Gelehrtheit’, quite simply, ‘Advancement through learning.” In the 2010/11 academic year, S&B doubled the number of successful Apprenticeships over the previous year with some 350 apprentices graduating from the Academy. At the same time, achievement levels reached an all-time high with an overall success rate of 85%. For those learners on the Advanced Apprenticeship three-year programme, success rates were even higher, at over 98%. PHOTO CAPTION: As part of their exchange visit, S&B Automotive Academy arranged for the German apprentices to visit Hampshire bus operator, Bluestar, at its Barton Park depot. The students are pictured with S&B’s Andy West (3rd right) and Steve Prewett, Bluestar’s Area Engineering Manager (2nd right). Ends http://www.sandbaa.com
The insurance regulator, the Financial Conduct Authority (FCA), has promised to crack down on so-called "add-on" policies.