Directors at the Federal Reserve’s regional banks said at meetings last month that the U.S. economy grew at a modest pace as gains in housing helped offset a high jobless rate and a deadlock over U.S. fiscal policy.
“Some directors noted continued improvement in the housing sector and increases in consumer spending,” according to minutes released today in Washington summarizing the discussions. “However, unemployment remained elevated, and ongoing fiscal and regulatory uncertainties continued to weigh on business investment and hiring and on economic growth.”
The directors saw inflation as “subdued,” with longer- term inflation expectations “stable” despite recent fluctuations in oil and commodity prices, the minutes show.
The directors’ recommendations on the discount rate, which has been at 0.75 percent since February 2010, were similar to those at earlier meetings. Members of the Boston Fed’s board of directors urged a quarter-percentage point reduction, to 0.5 percent, while the Kansas City Fed repeated its request for a quarter-point rise to 1 percent. The other 10 banks did not request a change.
Fed Chairman Ben S. Bernanke today said in his semiannual monetary policy report to Congress that “inflation is currently subdued, and inflation expectations appear well anchored.”
The automatic federal budget cuts set to begin March 1 will put a “significant” burden on the economy if lawmakers can’t avert the reductions, he said.
U.S. lawmakers face the start of $1.2 trillion in across- the-board government spending cuts, known as sequestration. The nonpartisan Congressional Budget Office estimates that the spending cuts will cause a 0.6 percentage-point reduction in growth this year.
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