Ben Bernanke Federal Reserve gloomy forecast, August 1, 2012, US economy decelerated, Disappointing jobs reports and sharp slowdown in US growth

Ben Bernanke Federal Reserve gloomy forecast, August 1, 2012, US economy decelerated, Disappointing jobs reports and sharp slowdown in US growth

“The United States economy has lost more jobs than it has added since the recovery began over a year ago.”…NY Times Sept. 20, 2010.

“We tried our plan—and it worked. That’s the difference. That’s the choice in this election. That’s why I’m running for a second term.”…Barack Obama

“Because I’m capping greenhouse gases, coal power plants, you know, natural gas, you name it — whatever the plants were, whatever the industry was, uh, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.”…Barack Obama

From the Guardian August 1, 2012.

“Fed gives gloomy forecast on US recovery but no new stimulus yet”

“Fed chairman Ben Bernanke has consistently said that he is not ruling out direct action in the event of a stalling economy. Photograph: Karen Bleier/AFP/Getty Images
The US Federal Reserve signalled on Wednesday that it is increasingly worried about America’s fragile economic recovery – but once more stopped short of taking direct action.

After a two-day meeting, Fed officials said the economy had “decelerated somewhat” over the first half of the year, and gave a stronger signals they may take further action as they keep a close watch on the US recovery.

Weakness in the US economy has been underlined since the last Fed meeting by disappointing jobs reports and a sharp slowdown in US growth, which had led to speculation that the Fed might act. After two days of falls US stock markets had rallied ahead of the statement as investors expected action. But the Dow Jones turned negative when it became clear no action would be forthcoming.

“The committee 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,” the central bank said in a statement issued at the end of the Federal open market committee’s (FOMC) two-day policy meeting.

Fed chairman Ben Bernanke has consistently stated that the Fed is considering further action should the recovery appear to be stalling.

There were fresh signs of weakness on Wednesday as a key poll showed economic activity in the manufacturing sector contracted in July for the second month in a row after 34 consecutive months of expansion. The Institute of Supply Management’s purchasing managers index (PMI) – which measures the acquisition of goods and services – stood at 49.8% in July, barely moving from June’s reading of 49.7%. The index must be above 50% to indicate growth.

Dan Greenhaus, chief global strategist at BTIG, said the Fed was “clearly on a knife’s edge with respect to providing additional stimulus”. Fed statements are parsed line by line for indications of change in policy.

In a note to clients, Greenhaus wrote: “Importantly, the first sentence in the FOMC statement, which noted in June that ‘the economy has been expanding moderately this year’ now says that ‘economic activity decelerated somewhat over the first half of this year.’

“They note that ‘household spending has been rising at a somewhat slower pace than earlier in the year’ while ‘inflation has declined since earlier this year.’ All told, the Fed clearly took down its assessment of the current economic situation.”

Ken Goldstein, an economist at the Conference Board in New York, said the Fed was in a fix. Republicans have already criticised the Fed’s actions and are likely to pounce on any action from the Fed ahead of November’s election.
“This is going to get increasingly political as the election approaches,” Goldstein said.

Goldstein said the economy seemed to be “muddling along rather than falling off a cliff,” and that he believed the Fed was unlikely to act unless evidence of a severe weakening in the US economy emerged.

With economy emerging as the key battleground of the 2012 election, economic indicators have seldom been more closely watched. Last week the commerce department announced that US gross domestic product (GDP) – the broadest measure of an economy’s health – stood at 1.5% in the second quarter, down from 2% in the prior three months, and 4.1% in the fourth quarter of 2011.”

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