Fed says US economy has slowed, but not enough to take steps

Private employers added 163,000 jobs last month, more than expected
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The Independent Online

The Federal Reserve dashed hopes for an early dose of extra monetary stimulus to boost the sluggish US economy, sticking to its existing programme of bond pur-chases but promising to "closely monitor" developments.

The central bank's Federal Open Market Committee pushed off a decision on whether to launch a new round of bond buying, a tactic called quantitative easing that is designed to push down market interest rates to make it easier for homeowners to refinance their mortgages and small businesses to get loans for expansion.

Doveish members of the committee have argued publicly for more action to stimulate the economy, but their concerns were reflected only in language recognising the disappointing pace of recovery.

"Economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated," the FOMC said in a statement at the conclusion of its latest two-day meeting. The latest data has been bad, but not that bad.

Yesterday, a private sector labour market survey showed more jobs than expected were created in July, but separate figures on the manufacturing industry indicated factory activity shrank for a second month in a row and the outlook for the immediate future has deteriorated.

The ADP jobs report – which foreshadows the official government employment figures, due out tomorrow – said private employers added 163,000 jobs last month, more than expected.

Although the figures tempered some of the gloom, they did not change economists' view that US unemployment will be stuck above 8 per cent for several more months. And there was disappointment with the read-out of 49.8 on the latest ISM manufacturing sector survey, the second month in a row it has been below the 50 mark that separates expansion from contraction.

Patrick O'Keefe, director of economic research at JH Cohn, said the weak report "reflects that we face a blizzard of question marks about the economy. There's a lack of confidence that we can predict where things will be six or nine months. Investors don't know how to deploy their resources."