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Federal Reserve Says Economy Has Slowed, But Leaves Policy As Is

Filed by KOSU News in US News.
August 1, 2012

While it does indeed appear that “economic activity decelerated somewhat over the first half of this year,” the Federal Reserve also said in its policy statement this afternoon that it is not — as of yet — taking any news steps to give the economy a boost.

It plans to keep its “target range” for a key short-term interest rate at zero to 1/4 percent and will “continue through the end of the year its program to extend the average maturity of its holdings of securities.” That’s an effort to put downward pressure on longer-term interest rates by “swapping $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist,” as Bloomberg News writes.

The Associated Press says that “stocks turned lower Wednesday afternoon after the Federal Reserve decided against taking any new steps to pump money into the economy.” As Reuters adds, “the central bank dashed expectations among some investors by taking no new measures.”

While noting the slowing, the Fed did also say it “expects economic growth to remain moderate over coming quarters and then to pick up very gradually.” It will “closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” [Copyright 2012 National Public Radio]

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