WASHINGTON — The Federal Reserve struck a more cautious tone Wednesday about the strength of the U.S. economic recovery, indicating Europe’s debt crisis poses a risk to it.
Wrapping up a two-day meeting, the Fed in a 9-1 decision retained its pledge to hold rates at record-low levels for an “extended period.” Doing so is intended to energize the rebound.
Given the risks to the recovery, the Fed left a key bank lending rate between zero and 0.25 percent. The rate has remained at that level since December 2008.
The Fed expressed confidence that the recovery will stay intact despite threats from abroad and at home. But Chairman Ben Bernanke and his colleagues offered a slightly more reserved outlook than the last time they convened.
The Fed said the economic recovery is “proceeding.” That was a bit less upbeat than the view at the April meeting when the Fed said economic activity continued to “strengthen.” The Fed also said the labor market is “improving gradually.”
While not mentioning Europe by name, the Fed said “financial conditions have become less supportive of economic growth … largely reflecting developments abroad.”
The fragile economic picture increases pressure on President Barack Obama and lawmakers in Washington. Near-double-digit unemployment is certain to factor into the way Americans vote in congressional midterm elections this fall. If it fails to come down after that, the jobless rate could play a significant role in the 2012 presidential election.
Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, for the fourth straight meeting was the sole member to dissent from the Fed’s decision to retain the “extended period” pledge.
Hoenig fears keeping rates too low for too long could lead to excessive risk-taking by investors and feed new speculative bubbles in stocks, bonds and commodities.
