Thursday, August 2, 2012

U.S. Fed Defers Action on Economic Stimulus to September

The U.S. Federal Reserve on Wednesday decided to defer taking any new steps to bolster economic growth, to its next meeting in September, largely in line with expectations.

While a section of the market had hoped that the policy-making committee of the Fed would make some statements about a stimulus o the economy, most had anticipated that it would wait till September before initiating any action.

The Fed said that it would take action based on jobs growth data which would provide greater clarity on the health of the country's economy.

“The committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote stronger economic recovery and sustained improvement in labour market conditions,” the committee said.

The decision got the support of 11 committee members of the committee with the exception of dissenter, Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond who wants the Fed to reduce its efforts to stimulate the economy.

With unemployment rate stubbornly persisting above 8 percent some Fed officials had, in recent weeks, made a case for immediate action to boost growth, though others had advocated caution and to wait till more data came in.

The government will issue a preliminary estimate of July job creation on Friday and will forecast an estimate for August.

The action will now shift to the European Central Bank, which will meet on Thursday and some strong statements and action are expected in the Eurozone.

The Dow Jones Industrial Average(INDEXDJX:.DJI) fell 32.55 (-0.25%) to 12,976.13. The S&P 500 index SPX lost 4.18 (-0.30%) to 1,375.14, with energy the best performing and utilities the worst of its 10 major industry sectors. The Nasdaq Composite COMP 19.31           lost (-0.66%), to 2,920.21.

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