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Economy is on the mend but still needs help, Fed says

Janet Yellen said several factors “ought to be working to produce above-trend growth.”

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Janet Yellen said several factors “ought to be working to produce above-trend growth.”

WASHINGTON — The US economy still isn’t healthy enough to grow at a consistently strong pace without the Federal Reserve’s help. That was the message the Fed’s chair, Janet Yellen, sent Wednesday at a news conference after the central bank ended a two-day policy meeting.

Yellen made clear that despite an improving job market and signs of creeping inflation, the Fed sees no need to raise short-term interest rates from record lows anytime soon.

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The Fed said it would further slow its long-term bond purchases, which are intended to keep long-term loan rates low, cutting them from $45 billion now to $35 billion in July. But the Fed offered no clear signal about when it will start raising its benchmark short-term rate.

Most economists think a rate increase is at least a year away, despite signs of rising inflation. At her news conference, Yellen downplayed inflation concerns. Recent inflation figures are ‘‘noisy,’’ she said. Her comment signaled that the Fed doesn’t see high inflation as a risk that it would soon need to combat by raising interest rates.

David Jones, chief economist at DMJ Advisors, said it’s plain that the central bank intends to keep rates low for a considerable time. ‘‘The Fed is saying the economy still needs help and that inflation is not a threat at the moment,’’ Jones said. ‘‘Yellen is a lot more worried at the moment about how the job market is behaving than how inflation is behaving.’’

Uncertainty

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Yellen declined to say whether she was ‘‘confident’’ about stronger economic growth coming — ‘‘Because there is uncertainty,’’ she said.

She then enumerated why the economy should accelerate eventually: Credit is easing. Households are repaying debts. The federal government is exerting less of a drag on growth. The job market is strengthening. Home prices are rising. Stock prices are up. And the global economy appears to be improving.

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‘‘All of those things ought to be working to produce above-trend growth,’’ Yellen said.

They haven’t so far, five years after the Great Recession officially ended. A fierce winter caused the economy to shrink during the first three months of the year, putting it on a path similar to the meager 1.9 percent growth of 2013, according to its updated forecasts the Fed released Wednesday.

Pay is scarcely managing to keep up with even low inflation. And a high percentage of the unemployed, 35 percent, have been out of work for six months or more.

The statement the Fed issued was nearly identical to the one it released in April. It reiterated its plan to keep short-term rates low ‘‘for a considerable time’’ after it ends its bond purchases. Yellen was pressed to clarify what ‘‘a considerable time’’ might mean. She said the Fed has no firm timetable in mind.

The Fed downgraded its expectation for growth for 2014, acknowledging the harsh winter caused the economy to shrink in the January-March quarter. The Fed expects growth to be 2.1 to 2.3 percent this year, down from the 2.8 to 3 percent it projected in March. It thinks inflation will be 1.5 percent to 1.7 percent by year’s end, near its earlier estimate. It foresees unemployment, now 6.3 percent, declining to between 6 and 6.1 percent by year’s end — a slight improvement from the March forecast of up to 6.3 percent.

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