Expanding US frets over euro troubles

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The Federal Reserve has warned that turmoil in Europe presents a big risk to the US economy, leaving the door open to possible further steps to boost growth even though it noted a somewhat stronger labour market.

The central bank said the US economy was “expanding moderately” despite an apparent slowing in the world economy.

But while there had been some improvement in the job market, unemployment remained elevated and housing depressed, it said.

“Strains in global financial markets continue to pose significant downside risks to the economic outlook,” the Fed said after a policy meeting, alluding to pressures stemming from the debt crisis in the eurozone, which has raised concerns about tighter credit in the United States.

Some investors had speculated that the Fed might show more urgency about moving ahead with new measures to help the economy.

US stock prices fell, while prices for government debt rose. The dollar, which has been pressured by the Fed’s huge bond-buying programmes, gained against the euro.

The Fed’s statement was little changed from the one made after its last meeting in early November, although the US central bank pinned uncertainty for the US economy more squarely on events in Europe.

While in November it said risks to the outlook included global strains, on Tuesday it cited only the risk of volatility abroad.

Most economists have said the Fed’s next meeting on January 24-25 would be the more likely occasion for any new moves to add to the US central bank’s already extraordinary push to bring down borrowing costs and to help growth.

The statement touched only lightly on signs of improvement in the economy’s performance.

“They are certainly ready to lean against the wind should the economy falter,” said Cary Leahey, managing director at Decision Economics in New York.

So far, the US economy has shown little impact from the European crisis with unemployment falling and factory activity rising.