WASHINGTON — The Federal Reserve issued a vote of confidence in the economy Wednesday, saying it would take no new action to combat a recession that, while still severe, appears to be loosening its grip.
“Although economic activity is likely to remain weak for a time,” policy actions taken so far should “contribute to a gradual resumption of sustainable economic growth,” the Federal Open Market Committee, the central bank’s policymaking arm, said in a statement.
Recent economic data suggest the recession is closer to bottoming out. In the latest sign of improvement, the government said Wednesday that orders for appliances, aircraft parts and other durable goods were up 1.8 percent last month, on the heels of an April increase.
Such indicators “give the Fed some reassurance that the end of the recession is near, and it becomes less of a forecast and more of a reality as we go from meeting to meeting,” said John Ryding of the forecasting firm RDQ Economics in New York.
After creating massive amounts of new money to shore up the financial system and taking extraordinary action to prop up the market for everything from housing to credit card debt, the nation’s central bank is now in a holding pattern. Fed leaders Wednesday chose to keep a key rate they control unchanged — near zero — and not to speed up or increase previously announced purchases of government debt and mortgage-related securities.
Fed leaders have now declined for two consecutive meetings to take further actions to stimulate growth.
“If you were doing a progress report and had milestones every six weeks, they are right on target,” said Kurt Karl, chief U.S. economist for insurance firm Swiss Re. “There’s no need to change their game.”
Plenty more milestones remain. As Fed leaders noted in their statement, household spending “remains constrained by ongoing job losses, lower housing wealth and tight credit.”
The Fed’s statement Wednesday was also notable for what it did not say: what central bank leaders would do to withdraw the billions of dollars in new money the Fed has created.
“We didn’t expect a long dissertation, but we wanted some sort of hint they are considering an exit strategy,” said Sung Won Sohn, an economist at California State University-Channel Islands. “It would have taken half a sentence to say, ‘When the time comes, we are ready to exit.’ ”
Sohn interprets the omission as evidence that Fed Chairman Ben Bernanke wants the central bank to remain focused on jump-starting the economy.
