By Erik Wasson
The Federal Reserve on Wednesday announced no new steps to deal with the sluggish economy, but signaled a willingness to take action if the slowdown continues.
The central bank reiterated that it intends to keep interest rates low through 2014, while reporting that "economic activity decelerated somewhat over the first half of this year."
After the Fed's last policy meeting in June, the bank said it was "prepared to take further action as appropriate" to help the economy. On Wednesday, the bank tweaked that language, saying officials would "closely" monitor the situation and "provide additional accommodation as needed."
The slight change could indicate that the bank is moving closer to action. That would be welcome news for President Obama, who is hoping for an upturn in stock markets and the economy before the election.
In the wake of the 2008 financial crisis, the Fed instituted two rounds of quantitative easing (QE), a form of unconventional monetary stimulus. With interest rates already at historic lows, QE allows the Fed to ease credit further, in the hope of provoking business investment, spending and growth.
The Fed in November 2010 announced its second round of QE, buying $600 billion in Treasury bonds over eight months in a bid to boost the sluggish recovery by expanding the money supply.
In June, the Fed announced a six-month extension of "Operation Twist," a less ambitious way to reduce borrowing rates and boost the economy. It committed to selling $267 billion of shorter-term securities and buying the same amount of longer-term debt to do so.
At that time, Bernanke said a third round of quantitative easing remained an option, but cautioned, “I don't think they should be launched lightly.”
The Fed reiterated Wednesday that Operation Twist will continue through end of year.
Democrats this month had been pushing the Fed to do more to help the economy. In a July 17 hearing, Sen. Charles Schumer (D-N.Y.) urged Federal Reserve Chairman Ben Bernanke to act, saying Congress is too deadlocked to help the economy.
“Given the political realities ... I’m afraid the Fed is the only game in town, and I would urge you to take whatever actions you think will be most helpful,” he said. “Get to work, Mr. Chairman.”
Bernanke vowed not to play politics.
“We will act in an apolitical, nonpartisan manner to do what’s necessary for the economy,” he said.
On Wednesday, Schumer said he sees help coming from the Fed soon.
“If you read between the lines of the Fed’s statement, it’s safe to expect that new action is coming soon. It’s just a matter of when," he said. "Despite the pressure from the hard right, which is rooting for our economy to sputter and fail, the Fed should not be deterred from doing what’s needed to reduce unemployment.”
Republicans have warned the Fed against a QE3, and praised the Fed's decision on Wednesday.
“It would have been a mistake for the FOMC to intervene further into the economy. A strong, sustainable recovery will occur only when the private sector is confident that Washington will not continue to spend, tax and over-regulate it," said Rep. Kevin Brady (R-Texas), the vice chairman of the Joint Economic Committee.
"Absent a Eurozone collapse, the Fed has effectively reached its limit on what it can do to spur employment," Brady said.
Opponents of the Fed’s easy-money policies argue that the Fed is tempting price inflation, while punishing savers to help debtors and speculators. The Fed action makes refinancing mortgages more attractive and tends to boost stock values, while leaving rates on safer investments like certificates of deposits extremely low.
The rates also encourage government spending by allowing the government to borrow money more cheaply for spending that many conservatives denounce as waste.
The latest statement from the Fed comes just two days before the July jobs report, on the heels of the news that the economy grew just 1.5 percent in the second quarter.
ADP Employer Services reported on Wednesday that private-sector employers added 163,000 jobs in July, a slightly slower pace than June but a sign that the labor market is showing signs of life.
This story was updated at 4:00 p.m.