Federal Reserve Cautions On US Economic Growth
The Federal Open Markets Committee (FOMC) of America’s central bank voted 9-1 in favour of maintaining its federal funds rate at a range of 0pc-0.25pc for the 13th meeting in a row, as it adopted a somewhat cautious stance on future growth.
The central bank, chaired by Ben Bernanke, for the first time gave a formal nod to the problems in Greece and Spain and other eurozone nations struggling with high debt levels.
“Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad,” the FOMC statement warned. Until now the rate-setting committee had consistently said that “financial market conditions remain supportive of economic growth.”
Coming ahead of this weekend’s G20 meeting in Toronto, the comments will encourage the heads of the world’s leading economies to co-ordinate policies and ensure European austerity measures do not restrict growth.
The rest of the statement remained largely as it has done on previous occasions, with the Fed noting that the economic recovery is “proceeding” and that the labour market is “improving gradually.”
It went on to say once again that it believes interest rates will be held at these levels for “an extended period”.
For the fourth consecutive meeting Tom Hoenig, president of the Kansas Federal Reserve, disagreed with the consensus to hold rates, row, saying they are “no longer warranted.”
The decision came soon after news that sales of new houses fell by 32.7pc in May as prospective buyers homebuyers stalled following the removal of the government’s tax incentive for first-time buyers.
Based on the new data, economist now predict 300,000 sales of new home for the whole year – the lowest level since records began in 1963.
Patrick Newport, US economist at IHS Global Insight, attributed the slowdown to the removal of the tax credit, saying that “going forward sales should improve”.
However, he did point out one “statistical eyesore”, noting “the median time to sell a home is still near a record high. For builders, market conditions remain brutal. But things should be looking up soon.”
The sales data followed figures from the Mortgage Bankers Association that the number of US mortgage applications fell by 5.9pc in the week ended June 18, coming off a six-month high.
Meanwhile a survey by the Business Roundtable found that chief executives of major US companies became more optimistic in the second quarter of the year, predicting job growth and stronger sales for the rest of the year.