As growth has sputtered this year, economists have pointed to higher oil prices, the Japanese earthquake, bad weather, and a lack of confidence. The unifying theme was that spending and investment would surge as these temporary impediments subsided. The Fed’s latest forecast, however, reflects the surprising weight of deeper and more intractable problems, including unsustainable public and private debts, the wreckage of the housing market, and trade imbalances.
Roughly 25 million Americans were unable to find full-time work in May, and the central bank projects that most of those people will remain unemployed for years.
“We don’t have a precise read on why this slower pace of growth is persisting,’’ the Fed chairman, Ben S. Bernanke, said yesterday at a news conference. “Some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, may be stronger and more persistent than we thought.’’
The markets had been up for much of the day but began falling after the news conference started. The Dow Jones industrial average, which was as high as 12,207.99 in the morning, turned sharply lower after 2:30 p.m., ending the day down 80.34 points at 12,109.67.
Bernanke dismissed for now any possibility that the Fed would extend its efforts to stimulate growth, saying the economy was moving in the right direction. The slow pace of the recovery justified the Fed in continuing its existing efforts, he said, but not more.
The Fed’s policy board, the Federal Open Market Committee, voted unanimously to maintain its two-year-old commitment to hold a benchmark inter est rate near zero “for an extended period.’’ Bernanke said the language meant it would not raise interest rates for “at least two or three meetings,’’ pushing back to November the earliest moment rates could rise. Economists consider it likely that the central bank will hold interest rates near zero well into next year.
