WASHINGTON — The Federal Reserve on Tuesday portrayed the U.S. economy as slightly healthier and held off on any new steps to boost growth.
Hiring is picking up and consumers are spending more despite slower growth globally, the Fed said in its policy statement issued after its final meeting of the year.
However, Fed officials cautioned that business investment has slowed and unemployment remains high. And they warned of strains in global financial markets that pose a threat to the world’s economy — a reference to Europe’s debt crisis. They left open the possibility of taking new steps next year if the economy worsens.
The Dow Jones industrial average closed down 66 points for the day, after being up by as much as 126 points before the Fed issued its statement. Broader indexes also ended the day lower.
The Fed made only slight changes to November’s statement. The policy committee approved it by an identical 9-1 vote. Charles Evans dissented for the second straight meeting, arguing again for more action by the Fed.
Still, the modestly upbeat statement appeared to disappoint investors and triggered the late-afternoon slump on Wall Street. Traders had hoped the Fed would announce new policy action, even though most economists expected none.
“The Fed did exactly what the markets were expecting, which is nothing, so the market decline is puzzling,” said Mark Zandi, chief economist at Moody’s Analytics. “It is always possible that there was some outside hope the Fed would do more to support the economy at this meeting and when the markets didn’t get that, they fell.”
Many economists said Fed policymakers likely spent their final meeting of the year fine-tuning a strategy for communicating changes in interest rates more explicitly. The Fed has left rates near zero for the past three years. More guidance would help assure investors, companies and consumers that rates won’t rise before a specific time.
The Fed made no mention of a new communications strategy in its statement. But economists say it could be unveiled as soon as next month, after the Fed’s Jan 24-25 policy meeting.
Diane Swonk, chief economist at Mesirow Financial, said the November minutes showed that the Fed discussed adding an interest rate forecast to its quarterly economic projections.
Swonk said the Fed may be trying to build a stronger consensus before announcing the change. She also noted that three Federal Reserve regional bank presidents who opposed key policy changes this year will not have votes next year.
Charles Plosser of Philadelphia, Richard Fisher of Dallas and Narayana Kocherlakota of Minneapolis all dissented from the Fed’s policy statements in September and August after citing concerns that the actions introduced at those meetings could fuel inflation.