Federal Reserve perks up (a bit) on economy

@CNNMoney November 2, 2011: 5:39 PM ET

NEW YORK (CNNMoney) -- The Federal Reserve issued a slightly better outlook on the economy Wednesday, but cut its economic growth forecast for the year overall.

Following a two-day policy meeting, the central bank voted 9-to-1 to make no changes to the Fed's ongoing stimulus program, and maintain its pledge to keep interest rates at record lows "at least through mid-2013." The Fed has held rates near zero since December 2008.

"Economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year," the Fed said in its statement.

Because of weak growth in the first half of the year, the central bank chopped its forecasts for 2011 as a whole. The Fed expects the country's gross domestic product to grow between 1.6% and 1.7% for the year, down from its earlier estimates of 2.7% to 2.9%.

Meanwhile, the Fed expects the unemployment rate to stay around its current level of 9.1% through the end of the year, and not fall below 8% until at least 2013.

The Fed also noted in its statement that household spending has increased at a faster pace recently, as business investment has also expanded. The housing market continues to be a drag though, and risks to economic growth, including strains in global financial markets, still persist.

Read the Fed statement

At its last meeting in September, the Fed launched a program known as Operation Twist, swapping $400 billion in short-term bonds for longer term securities. The program was intended to bring down long-term interest rates, making it cheaper for businesses, consumers and potential homebuyers to secure cheap loans.

By coupling that plan with investments in mortgage-backed securities, the Fed has also been targeting the housing market specifically, by trying to bring down record-low mortgage rates even further and giving homeowners an incentive to refinance their existing mortgages.

The effects of those ongoing programs have yet to be fully realized, but already some Federal Reserve officials have been making a case for more stimulus.

Last month, Fed Governor Daniel Tarullo and New York Fed President William Dudley both called for more efforts to prop up the housing market.

Janet Yellen, second in command to Fed chairman Ben Bernanke, said another round of asset purchases could be necessary to boost U.S. economic growth. And Chicago Fed President Charles Evans has been pushing for the central bank to do more to fix the jobs crisis.

While the Fed decided not to act on any of those ideas in their latest meeting, all that campaigning has outsiders wondering if the central bank could be preparing to act at its upcoming meeting in December.

Evans dissented against the Fed's decision Wednesday, because he would have preferred the central bank take additional action. He was the only Fed member to formally dissent.

Speaking to reporters Wednesday, Bernanke acknowledged that the Fed has discussed various options for further stimulus, but he fell short of endorsing any particular plan.

"We are prepared to take further action," he said. "We have the tools to do more, if that's appropriate."

One example Bernanke gave was the "communications tool," which refers to the Fed attempting to influence the economy merely by being more transparent about its targets for inflation or economic growth. But Bernanke said the committee had not reached a decision on such a policy yet.

Bernanke also addressed the Occupy Wall Street protests, which in many parts of the country have included backlash against the Fed.

"I fully sympathize with the notion that the economy is not performing as we would like it to be," he said. But Bernanke pushed back against the idea that the Fed is part of the problem.

"I think that the concerns about the Fed are based on misconceptions," he said. "Certainly, we are doing our part to try to create more jobs and create more opportunities in America." To top of page

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