Fed Projects Anemic Growth of 1.9 Percent
Policy + Politics

Fed Projects Anemic Growth of 1.9 Percent

Getty Images

The Federal Reserve Board voted to do nothing more than extend Operation Twist at the policy-setting meeting that concluded Wednesday, but it must have been a close call.

Fed economists are now projecting the economy will grow by an anemic 1.9 to 2.4 percent this year, down from the 2.4 to 2.9 percent projected in April. Next year, the Fed sees the economy growing at just 2.2 to 2.8 percent, down from 2.7 to 3.1 percent seen just two months ago.

That somber projection, born of continued turmoil in European bond markets and fiscal contraction across the industrialized world,  means unemployment, currently stuck at 8.2 percent, will barely budget this year. Next year, it will fall at best to 7.5 to 8 percent, not the 7.3 to 7.7 percent projected earlier.

“Growth in employment has slowed in recent months, and the unemployment rate remains elevated,” the Federal Open Markets Committee noted in its statement. “The committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually.”

The limited actions taken by the Fed at the meeting surprised many investors, who had been expecting more aggressive action in the wake of last month’s jobs report, which showed just 69,000 new jobs. The pace of hiring is slowing in almost sectors except health care; state and local governments continue to contract; and the federal government is on the cusp of sharp cutbacks in its spending, which accounts for about 23 percent of the nation’s economy.

The FOMC opted to extend Operation Twist, where it sells short-term bonds for long-term securities to drive down long-term rates, until the end of this year. It also pledged to keep short-term rates between zero and ¼ percent at least through the end of 2014.
But it gave no hint that it might engage in more aggressive actions later this year like a third round of quantitative easing.