Fed not sweating high oil prices

By Chris Isidore, senior writer


NEW YORK (CNNMoney) -- The nation's economic recovery is getting stronger but inflation remains in check, according to the Federal Reserve. The Fed said Tuesday it will remain on its current course of pumping more cash into the economy.

"The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually," said the Fed in one of its most bullish statements in years.

The central bank acknowledged there have been significant increases in commodity prices such as oil since its last meeting, but added that it believes underlying inflation pressures remain subdued.

The Fed said it will continue its plans to buy up to $600 billion in long-term Treasuries through the end of June in an effort to spur stronger economic growth.

That policy, known as quantitative easing or QE2 for short since it is the second round of bond buying, has come under criticism by economists worried about inflation.

But the Fed said it doesn't believe that the oil price increases are a concern it should address since it thinks the supply concerns, sparked by turmoil in the Middle East, will prove to be "transitory."

But despite higher inflation readings as of late, the Fed said "measures of underlying inflation continue to be somewhat low" -- suggesting the Fed is still more worried about the risk of weak prices.

Even the so-called inflation hawks among the Fed policymakers, such as Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser voted in favor of the Fed's actions. Those two presidents have been critical of QE2 in recent public statements.

The Fed also left the fed funds rate, its key rate that is used as a benchmark for a wide range of consumer and business loans, near 0%, where it has been since December 2008. The central banks repeated that it still expects to keep rates exceptionally low for "an extended period."

Still, higher energy and food prices are just one of several headwinds that economists fear could slow or stall the recovery. Cuts in spending by federal, state and local governments, continued weakness in the U.S. housing market and slowing growth overseas are other concerns.

Global fears have been exacerbated by Friday's devastating earthquake in Japan, which many economists believe could send the world's No. 3 economy into recession. The Fed did not mention the events in Japan in its statement.

The lack of any mention of Japan wasn't the only thing that caught economists' attention.

The Fed nixed mentions of how economic growth had been too slow "to bring about a significant improvement" in jobs, or that "employers remain reluctant to add to payrolls." Both those phrases were in the statement released following the Fed's last meeting in January.

Also dropped from Tuesday's statement was a reference to how consumer spending "remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit."

Theodore Littleton, economist with IFR Markets said he wasn't surprised with the more positive tone from the Fed.

"It was getting a little difficult to defend their more downbeat assessment of the labor markets, given the drop in the unemployment rate," he said.

The unemployment rate has declined almost a full percentage point between November and February, the biggest three-month drop in nearly 28 years.

But other economists said the Fed's stance is curious, given the rising concerns about obstacles for the recovery.

"We did expect a more upbeat tone but it's surprising to see them drop all of those phases that had been used a cautionary signals," said Michael Gapen, director of U.S. economic research at Barclays Capital. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,974.31 -31.44 -0.18%
Nasdaq 4,549.23 -15.07 -0.33%
S&P 500 1,982.30 -2.75 -0.14%
Treasuries 2.32 0.00 0.00%
Data as of 8:30am ET
Company Price Change % Change
Facebook Inc 75.86 -4.91 -6.08%
Bank of America Corp... 16.99 0.19 1.13%
Apple Inc 107.34 0.60 0.56%
Ford Motor Co 13.91 -0.12 -0.89%
Alcoa Inc 16.27 -0.33 -1.99%
Data as of Oct 29

Sections

Swift pledges to donate all of the proceeds from her new song "Welcome to New York" to the city's public schools. More

Apple CEO Tim Cook writes column in which he announces that he's gay: "I consider being gay among the greatest gifts God has given me." More

Marc Andreessen says venture capital funding is likely to increase as tech startups touch more sectors. More

In cities across the United States, millions of people will be kicked out of their homes this year. Some can't afford their soaring rent, others are getting evicted over minor violations by landlords eager to get higher paying tenants in place. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.