Fed poised to act if US job market fails to improve

Published on 02/08/2012 00:00

The Federal Reserve yesterday confirmed the US economy is losing strength and repeated a pledge to take further steps if the job market fails to show sustained improvement.

But the Fed took no new action after its two-day policy meeting. Policymakers repeated their plan to hold short-term interest rates at record low levels until at least late 2014.

Chairman Ben Bernanke told Congress last month that the Fed is prepared to take further action if unemployment stays high.

Worries have intensified over whether the US economy will fall off a “fiscal cliff” at the end of the year when tax increases and deep spending cuts will take effect unless Congress reaches a budget deal.

The Fed statement came as the US raised pressure on eurozone leaders to take decisive action to solve the region’s debt crisis, notably by lowering troubled members’ borrowing costs, on the eve of a crucial European Central Bank meeting.

In an interview with Bloomberg Television, US treasury secretary Timothy Geithner said the eurozone must take steps including “bringing down interest rates in the countries that are reforming and making sure those banking systems can provide the credit those economies need”.

Italy and Spain, the eurozone’s third and fourth largest economies, could lose access to credit markets as the risk premium that investors demand to hold their bonds rather than safe-haven German debt has spiralled to levels considered unsustainable in the long term.