The Federal Reserve offered a dim view of the economy Tuesday and signaled it’s prepared to provide new relief if necessary.
At the end of its meeting, the Fed held off on taking any new steps to rejuvenate the economy and drive down unemployment. Instead, the Fed is prepared to see if the economy can heal on its own.
In its statement, the Fed said it is more worried about prices falling than rising because the economy is so weak. The Fed didn’t use the word deflation, but some economists have raised concerns about the country sliding into a deflationary spiral. That’s a widespread drop in wages, prices of goods and services and the value of stocks and homes.
Stock prices, which had been relatively flat before the Fed’s statement, rose afterward. The Dow Jones industrial average was up nearly 60 points minutes shortly after.
The meeting is the Fed’s last before the Nov. 2 elections, and it comes as voters are focused on the economy and the jobs crisis. Polls show they are inclined to punish Democrats in Washington for the sluggish economy.
The Fed used the same language it did in August to sketch a downbeat view of the economy. It concluded that economic activity has slowed in recent months. And it warned that the pace of growth is likely to be “modest in the near term,” almost identical to the assessment the Fed made a month ago.
But the Fed delivered a stronger signal that it would take new steps to help the economy. The Fed said it is “prepared to provide additional accommodation.” In its previous policy statements, the Fed didn’t go that far. Instead, it had said it will “employ its policy tools as necessary.”
For the sixth straight meeting, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, was the sole dissenter.