Fed Cuts Forecast For Growth
MICHELE NORRIS, Host:
And as NPR's Jim Zarroli reports, Fed Chairman Ben Bernanke continued a new policy, after the meeting, held a news conference to explain the Fed's actions.
JIM ZARROLI: Bernanke told reporters it would be months before the Fed even considered raising rates. He made clear that while the economy is still growing, it's doing so at a tepid pace, and growth has slowed even further this year. He said the economy will grow by 2.9 percent at best, a slight drop from previous forecasts, and unemployment could still be as high as 8.9 percent at year's end.
NORRIS: In short, we expect the unemployment rate to continue to decline, but the pace of progress remains frustratingly slow.
ZARROLI: Bernanke said the economy had been hit by a rise in gasoline prices and by supply disruptions caused by the Japanese earthquake. He said these were temporary factors, and he said growth would probably pick up again once they eased. But Bernanke also held open the possibility that the long-term troubles facing the economy were more entrenched than Fed officials believed.
NORRIS: One way to think about it is that maybe some of the headwinds that have been concerning us, like, you know, weakness in the financial sector, problems in the housing sector, some of these headwinds may be stronger and more persistent than we thought.
ZARROLI: Despite that, Bernanke told reporters that the Fed would go ahead with plans to quit buying long-term Treasury debt at the end of this month. The program, dubbed quantitative easing, was meant to bring down long-term interest rates, and Bernanke said it had succeeded. But he said the gains had been offset by the fact that lenders have tightened credit standards, something that's hurt the housing market in particular.
NORRIS: So that roughly the bottom third of people who might have qualified for a prime mortgage, in terms of, say, FICO scores, a few years ago, cannot qualify today.
ZARROLI: Bernanke was asked about the current debate over government spending and whether reducing the budget deficit would help the economy. He said sharp reductions in government spending would not help create jobs right now.
NORRIS: So I think in the very short run, that, you know, the fiscal tightening is, at best, neutral and probably somewhat negative for job creation.
ZARROLI: Jim Zarroli, NPR News.
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