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FOMC confirms policy on economic stagnation

January 31, 2013

The Federal Open Market Committee confirmed to continue its monthly pur-chases of $45 bn in treasuries and $40 bn in mortgage bonds to spur the stalled econo-my and push down the unemployment rate below 6.5% (currently 7.8%). According to the FOMC’s statement, the U.S. economy slowed by “transitory factors” and still faces “downside risks” even after strains in global financial markets have eased.

U.S. gross domestic product unexpectedly shrank in the final quarter of 2012, mainly due to a slump in defense spending, a first estimate of the Bureau of Economic Analysis in Washington showed. On an annualized basis, the economy shrank 0.1% in the fourth quarter, while the median economists’ forecast called for a 1.1% gain, following a growth rate of 3.1% in the third quarter. Defense spending plunged 22.2%, the most since 1972, inventories dwindled, exports fell 5.7%, and hurricane Sandy took its toll in the last quarter, while a drop in fuel prices and the biggest gain in incomes in four years bolstered consumer consumption (+2.2%). The initial GDP estimate is the first of three for the quarter, with the other releases scheduled for February and March when more information becomes available. For all of 2012, the economy expanded 2.2% after a 1.8% gain in 2011.