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Eurozone Crisis Continues to have Risks for U.S. according to Fed but Domestic Improvements Noted

The Federal Reserve in a statement on Tuesday pointed to the problems in Europe as still posing a big risk for the US economy even as it noted some improvements to the U.S. labor market. The Fed left the door open for further easing of monetary policy. It characterized the U.S. economy as moderately expanding even with the slowing of global growth and said that unemployment remained high while the housing market was depressed.

“The committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually,” the FOMC said in its statement. “Strains in global financial markets continue to pose significant downside risks to the economic outlook,” the Fed said. The Fed issued the statement after a one day meeting but offered no new guidance and repeated that it expects inflation to settle at levels at or below those consistent with its price stability mandate.

Chicago Fed President Charles Evans for the second consecutive meeting dissented, saying he favors doing more to stimulate the economy now. Evans has favored a plan to have the Fed pledge to keep the interest rates exceptionally low until unemployment hits an agreed upon level. Fed officials are divided over whether more action would help the high unemployment and sluggish growth thus the vote was 9-1.

Changes in 2012 to the Fed Line up may remove three policymakers favorable to taking a hard line against inflation and thus increase support for further easing steps. Experts think the Fed will take steps to stimulate the economy in 2012 by communicating the fact that interest rates will remain where they are for a long time and then by buying more Treasury bonds.

New data regarding the U.S. economy show the jobless rate decreased by 0.4 percent to 8.6 percent in November and that consumer spending appears solid. The U.S. economy also expanded in the third quarter at a 2.0 percent annual rate that is expected to reach 3 percent in the current quarter.

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