Friday 25 September 2009

The worst is over...

The Federal Reserve is optimistic that the worst of the financial and economic crisis is over. Yet, they kept interest rates unchanged as it maintains the most aggressive easing monetary policy in history. Financial Times reported the following:
“Conditions in financial markets have improved further, and activity in the housing sector has increased,” Household spending seems to be stabilising, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”
The Fed decision comes amid mounting evidence that the economic crisis is abating. Last week, Ben Bernanke, chairman of the Federal Reserve, said the US recession “is very likely over” and last month’s Federal Open Market Committee meeting minutes indicated that “economic activity is levelling out”.
On Wednesday the Fed said that businesses were still cutting back on fixed investment and staffing, but at a slower pace, and that they continued to make progress in bringing inventory stocks into better alignment with sales.
Those comments came as the manufacturing and housing markets have recently shown promising signs of life. However, unemployment, which last month reached a 26-year high of 9.7 per cent remains a looming problem and economists are expecting the rate to reach above 10 per cent before easing next year.
Analysts are expecting the US economy, which contracted at an annual rate of 1 per cent in the latest quarter, to grow by around 3 per cent in the third quarter of this year. However, many have been awaiting signals from the Fed about “exit ” plans from its aggressive strategies of quantitative easing and its agency debt buying programme.
Meanwhile, substantial “resource slack” is keeping rising costs in check and the Fed said that long-term inflation expectations were “stable” and that inflation would remain “subdued” for some time.

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