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Economy

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Fed reports economic expansion as fiscal cliff nears

– The U.S. economy expanded at a “measured pace” in recent weeks as gains in consumer demand and housing were tempered by a slowdown in manufacturing and the impact of Superstorm Sandy, the Federal Reserve said Wednesday.

“Consumer spending grew at a moderate pace in most districts, while manufacturing weakened,” the central bank said in its Beige Book business survey, which is based on reports from the Fed’s 12 district banks. “Contacts in a number of districts expressed concern and uncertainty about the federal budget, especially the fiscal cliff.”

The report indicates that Fed policymakers are unlikely to curtail monthly purchases of $40 billion in housing debt to boost the three-year economic expansion. It also bolsters Fed Chairman Ben Bernanke’s view that reducing long-term federal budget deficits without abrupt tax increases and spending cuts would remove a barrier to growth.

The Fed is “trying to convey that growth is ongoing but not sufficient,” said Drew Matus, senior U.S. economist with UBS Securities. The central bank will continue its $40 billion monthly purchases of mortgage-backed securities and begin purchases of Treasury bonds when their current maturity extension program ends in December, Matus said.

The Beige Book provides anecdotal evidence on the health of the economy two weeks before the Federal Open Market Committee meets in Washington. In its prior report, the Fed said that “economic activity generally expanded modestly.”

“Even if the fiscal cliff does happen, housing is still a bright spot and this Beige Book confirms that,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Conn.

The Fed said “widespread disruptions” caused by Superstorm Sandy contributed to weaker conditions in the New York region and exacerbated the “general weakness.”

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