Wednesday, 28 January 2009

Federal Reserve Statement

"The Federal Open Market Committee decided today to keep its target range for the federal funds rate of 0 to 1/4 percent.

The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending.

Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight.

The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.

In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters.

Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

So their scenario is that a gradual recovery (not a full one!) might start end of the year BUT the risks that the scenario will not happen are significant.

So, basically, they have no clue whatsoever about the future outlook, all they can do is to avoid being negative.

No signs of inflation in the quarters ahead - read it as at least a good year. On the contrary they are highlighting the fact that deflation could be a threat: "inflation could persist for a time below rates", a nice way to talk about deflation.

Regarding the stock market, be carefully no to be drag in this "sucker rally", as possibly between now and March there will be a significant correction. We are very far from an economical recovery...

Jumping from a central bank to another, Jean-Claude Trichet , the ECB president, has signaled that he will not cut interests rate in February but most probably in March...signaling still weakness ahead.

1 comment:

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