Rex Nutting of MarketWatch reports that top U.S. monetary-policy makers at the Federal Reserve are breathing a big sigh of relief in so far economic conditions at the moment indicate that the second coming of the Great Depression has been averted.
In a statement Wednesday following its two-day closed-door meeting, the Federal Open Market Committee took a first big step toward normalizing monetary policy. For the first time in months, the FOMC statement was largely upbeat, at least about the economic outlook. The committee had no new lending or credit-easing programs to announce, and most of what it had to say about the economy was positive.
The committee noted the obvious: "The pace of economic contraction is slowing." After the worst six months for the economy in more than 50 years, the pain is easing. But officials were quick to caution that "economic activity is likely to remain weak for some time."
It's no time to start raising rates, or remove the sizable props that have been holding the economy up. Support from the Fed is still needed. Perhaps the biggest change in the statement was the removal of any warning about the threat of deflation. The FOMC acknowledged the rise in energy and commodity prices but stuck to its contention that "substantial resource slack" would keep inflation "subdued for some time."
The FOMC took a big first step toward a first rate hike by erasing earlier comments about deflation. The tentative good news on growth needs to be followed up with actual growth before the Fed will contemplate rate hikes, or reverse the credit-easing policies that have flooded the banking system with $1 trillion in idle reserves.
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