Federal Reserve policy-makers today lowered the federal funds rate target and the discount rate by 25 basis points each, to 2% and 2.25%, respectively. “Recent information indicates that economic activity remains weak,” the Fed’s Federal Open Market Committee said in a statement.
“Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters,” the policy-makers added.
The Fed’s announcement erased the markets’ early gains today, which were touched off by other reports that suggested the economy is not in recession territory. The private sector added 10,000 jobs in April, according to monthly payroll data from ADP Inc., an improvement over analysts expectations of an 80,000-job decline ahead of the Labor Department’s April employment report, slated for release on May 2.
Also, the U.S. economy expanded at a 0.6% pace in the first quarter, according to the Commerce Department. While anemic, the growth rate was still stronger in January-March than Wall Street's 0.2% forecast. However, final domestic sales, or what American consumers bought in the first quarter, contracted by 0.4%, the first such decline since the 1991 recession, mirroring the declining trend in consumer confidence shown in several recent surveys.
“From the perspective of consumer confidence, U.S. households are in a recessionary funk,” John Lonski, managing director at Moody’s Investors Service, said in a research note to clients.
The Dow Jones industrial average closed down 11.81, or 0.09%, at 12,820.13; it had briefly topped the 13,000 mark prior to the Fed’s rate announcement. The S&P 500 fell 5.33, or 0.38%, closing at 1,385.61; and the Nasdaq composite dipped 13.30, or 0.55%, to close at 2,412.80. All numbers are preliminary.
