Personal Liberty Digest™ will be upgraded this weekend to reflect a dynamic new look and mobile-friendly viewing to enhance your experience! Plus, we'll be providing even more of the compelling content you've come to expect, delivered in a whole new way!

  Comments Subscribe to Personal Liberty News Feed Subscribe to Personal Liberty
 

Fed Stays Course On Policy But Acknowledges Rising Inflation

July 30, 2014 by  

(MCT) — Despite the economic rebound and sharp drop in the unemployment rate recently, Federal Reserve officials still see considerable weakness in the labor market and remain very cautious about moving away from their easy-money policy.

The Fed, in a statement after its two-day meeting Wednesday, said it would continue to trim the size of its bond-buying stimulus. But the central bank left its key short-term interest rate near zero and gave no indication that it was about to change course anytime soon.

The Fed doesn’t want to spook investors; markets aren’t expecting a first rate increase until well into next year. But with the economy having snapped back from the winter doldrums, which was affirmed in a government report Wednesday, and inflation moving higher toward the Fed’s 2 percent target, there were indications that policymakers may feel more pressure to tighten policy sooner.

Fed Chairwoman Janet L. Yellen saw her first public dissent from a fellow policymaker since taking the reins in February. The president of the Federal Reserve Bank of Philadelphia, Charles Plosser, voted against the statement issued Wednesday, objecting to the line that the Fed’s benchmark rate would remain unusually low for a “considerable time” after the bond purchases end, expected this fall.

The bond-purchase program, begun in 2012 with the central banking buying $85 billion of Treasury bonds and mortgage securities a month to push down long-term interest rates, was cut an additional $10 billion and will stand at $25 billion starting in August. Yellen has said the Fed intends to conclude the program in October.

Greg McBride, chief financial analyst at Bankrate Inc., said the single biggest change in the Fed’s policy statement was the acknowledgement on inflation. At one time, the Fed had expressed concern that inflation was running too low, but more recently consumer prices have edged higher. Wednesday’s economic report showed inflation of 1.6 percent in the second quarter from a year ago.

“It gives them cover in the event we see an increase in inflation in the months ahead that forces the Fed to accelerate rate hikes,” McBride said of the change in language on inflation.

He also said that he expected so-called inflation hawks, in and outside the Fed, to raise their voices in the months ahead.

The Fed statement, however, made clear that most policymakers were still tilting toward doing more to help workers than being worried about the Fed’s other mandate, to maintain price stability. In speeches and testimony, Yellen has emphasized that the job market is much weaker than the sharp drop in the unemployment rate might suggest, specifically citing the anemic wage gains and large numbers of long-term jobless and part-time workers who want full-time hours.

Her concerns were made explicit in the statement Wednesday: “Labor market conditions improved, with the unemployment rate declining further. However, a range of labor market indicators suggests that there remains significant underutilization of labor resources.”

Besides the job market, the Fed statement reiterated that housing activity was slow, even as consumer spending and business investment were increasing.

The Commerce Department on Wednesday said economic output grew at a 4 percent annual rate in the second quarter, bouncing back from a revised 2.1 percent shrinkage in the first quarter — a drop attributed largely to the harsh winter weather. The stronger-than-expected growth in the last quarter came mostly from a pickup in consumer spending and a buildup of inventory by firms after the sluggish winter quarter.

–Don Lee
Los Angeles Times

___

(c)2014 Los Angeles Times

Visit the Los Angeles Times at www.latimes.com.

Distributed by MCT Information Services.

McClatchy-Tribune

Operated jointly by the McClatchy Company and Tribune Company, MCT serves more than 1,200 media clients, online information services and information resellers across the globe. With 600-plus contributors worldwide, MCT has an exceptional variety of sources, providing detailed analyses, opinions and perspectives.

Facebook Conversations

Join the Discussion:
View Comments to “Fed Stays Course On Policy But Acknowledges Rising Inflation”

Comment Policy: We encourage an open discussion with a wide range of viewpoints, even extreme ones, but we will not tolerate racism, profanity or slanderous comments toward the author(s) or comment participants. Make your case passionately, but civilly. Please don't stoop to name calling. We use filters for spam protection. If your comment does not appear, it is likely because it violates the above policy or contains links or language typical of spam. We reserve the right to remove comments at our discretion.

Is there news related to personal liberty happening in your area? Contact us at newstips@personalliberty.com

Bottom
close[X]

Sign Up For Personal Liberty Digest™!

PL Badge

Welcome to PersonalLiberty.com,
America's #1 Source for Libertarian News!

To join our group of freedom-loving individuals and to get alerts as well as late-breaking conservative news from Personal Liberty Digest™...

Privacy PolicyYou can opt out at any time. We protect your information like a mother hen. We will not sell or rent your email address to anyone for any reason.