Fed says US economy has slowed, takes no new steps

WASHINGTON — The Federal Reserve said Wednesday that the U.S. economy is losing strength, and it repeated a pledge to try to boost growth if hiring remains weak.

The Fed took no new action after a two-day policy meeting. But it appeared to signal, in a statement after the meeting, a growing inclination to take further steps to lift the economy out of its funk.

The Fed noted that growth had slowed over the first half of the year, with job creation slackening and consumer spending tapering off.

The Fed reiterated its plan to hold its benchmark short-term interest rate at a record low near zero until at least late 2014.

The statement was slightly different than the one issued after the Fed’s last meeting in June.

In addition to noting that the economy had “decelerated,” the Fed’s policymaking committee said it would “closely monitor incoming information” and “will provide additional accommodation as needed” to stimulate the economy and job creation.

In the June statement the central bank said “the economy has been expanding moderately” and that it “is prepared to take further action as appropriate.”

Many economists believe the Fed could launch another program of buying government bonds and mortgage-backed securities at its September meeting if the economy doesn’t show improvement. The goal of the program, known as quantitative easing, would be to drive long-term rates, which are already at record lows, even lower.

The Fed’s next move could depend on whether the European Central Bank, which meets today, takes any action to stimulate growth among the 17 countries that use the euro.

The next big signal on the U.S. economy’s health will come Friday when the Labor Department reports on July hiring and unemployment trends.

Economists forecast that U.S. employers added 100,000 jobs in July. That would be slightly better than the 75,000 a month average from April through June, but still below the healthy 226,000 average in the first three months of the year.

The unemployment rate is expected to stay at 8.2 percent.

Economists also will be watching Fed Chairman Ben Bernanke’s words closely when he speaks Aug. 31 at an economic conference in Jackson Hole, Wyo.

“The Fed took no action at this meeting but strongly hinted that there will be further easing action at the next meeting in September,” said David Jones, chief economist at DMJ Advisors.

The statement was approved on an 11-1 vote. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, which includes South Carolina, dissented for a fifth time this year. He objected to the Fed including language in the statement about keeping short-term rates low until late 2014.

U.S. economic growth slowed to an annual rate of 1.5 percent from April through June, down from a 2 percent rate in the first quarter and a 4.1 percent rate in the fourth quarter of 2011.

Fed officials have signaled in speeches their concern about job growth and consumer spending. Bernanke told Congress two weeks ago that the Fed is prepared to take further action if unemployment stays high.

Worries also have intensified that the economy will fall off a “fiscal cliff” at the end of the year, when tax increases and deep spending cuts will take effect unless Congress reaches a budget deal. A recession could follow, Bernanke has warned.

Economists also are concerned that the debt crisis in Europe could intensify. Borrowing costs are too high for many governments, including Spain and Italy, and growth is slowing across the region as the effects of budget-cutting take hold.

Unemployment hit a record 11.2 percent in June for the 17 countries that use the euro currency.

The ECB will hold a policy meeting today, and expectations are rising that it could try to jolt the region’s financial system through bond purchases or other measures. ECB President Mario Draghi said last week that he was ready to “do whatever it takes” to save the euro currency union.