Tags: Fed Economy

Fed: Economy Ends 2010 on Strong Note but Weak Housing, High Oil Are Risks

Wednesday, 12 Jan 2011 02:07 PM

 

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The U.S. economy ended last year on an encouraging note, with all parts of the country showing improvements. Factories produced more, shoppers spent more and companies hired more — pointing to a stronger economy in 2011.

That's the picture that emerged from the Federal Reserve's survey of economic conditions released Wednesday.

Still, risks loom. Declining home prices and millions of foreclosures are depressing housing markets around the country, the survey said.

Companies are also paying more for materials including oil, food products, steel, textiles and chemicals, the survey noted. However, competitive pressures prevented them from passing those increased costs on to customers in the form of higher prices.

And even thought employers are slowly hiring more, workers lack bargaining power to win bigger paychecks because of high unemployment, which is now at 9.4 percent.

Prices increases remain tame. The Fed will monitor inflation as it reviews its $600 billion Treasury bond-buying program, which is intended to boost the economy by lowering interest rates, encouraging spending and lifting stock prices.

Fed Chairman Ben Bernanke says he is optimistic that the economy will strengthen this year. But he warned last week that it will take up to five years for unemployment to drop to a historically normal level of around 6 percent.

The bond-buying program will come under scrutiny at the Fed's first meeting of 2011 on Jan. 25-26. Four regional Fed presidents become voting members of the Fed's policymaking group at that meeting. Two of them — Richard Fisher, president of the Federal Reserve Bank of Dallas, and Charles Plosser, president of the Federal Reserve Bank of Philadelphia — have voiced concerns that the bond-buying program could spur inflation.

Fisher and Plosser have reputations for being "inflation hawks," meaning they are more concerned about the prospects of rising inflation than they are about ratcheting down high unemployment. Both men are likely to put pressure on Bernanke to scale back the $600 billion program, especially later this year if the economy continues to gain momentum as expected.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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