The Herald Bulletin

Morning Update

Nation & World

May 1, 2013

Fed keeps stimulus, says taxes and cuts have hurt

(Continued)

WASHINGTON —

The Fed has been joined by other major central banks in seeking to strengthen growth and reduce high unemployment.

The European Central Bank could cut its benchmark lending rate from a record low of 0.75 as soon as Thursday because the euro area's economy remains stagnant.

Unemployment for the eurozone is 12.1 percent. And the ECB predicts that the euro economy will shrink 0.5 percent in 2013.

Japan's central bank has acted to flood its financial system with more money to try to raise consumer prices, encourage borrowing and help pull the world's third-largest economy out of a prolonged slump. Economists say Japanese consumers will spend more if they know prices are going to rise.

The Bank of Japan has kept its benchmark rate between 0 and 0.1 percent to try to stimulate borrowing and spending.

The Fed's goal is to keep price changes from hurting the economy. This could occur if inflation raged out of control or if the opposite problem — deflation — emerged. Deflation is a prolonged drop in wages, prices and the value of assets like stocks and houses.

The United States last suffered serious deflation during the Great Depression of the 1930s but Fed policymakers worry more about the threat of deflation any time prices go lower than 2 percent.

The Fed's action Wednesday was supported on an 11-1 vote. Esther George, president of the Kansas City regional Fed bank, dissented for a third straight meeting. The statement said George remained concerned that the Fed's aggressive stimulus could heighten the risk of inflation and financial instability.

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