Fed Keeps 'Extended Period' Pledge, Sees Improvement
Dec. 16 (Bloomberg) -- The Federal Reserve repeated its pledge to keep interest rates "exceptionally low" for "an extended period" and said the economy is strengthening.
"Deterioration in the labor market is abating," the Federal Open Market Committee said in a statement today after meeting in Washington. "Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit."
Policy makers led by Chairman Ben S. Bernanke, who faces a confirmation vote for a second term by the Senate Banking Committee tomorrow, met after a week of reports suggesting growth is picking up. With inflation forecast to be "subdued for some time," investors maintained bets the Fed won't tighten policy until August to bring down a jobless rate near a 26-year high.
"The economy has stabilized, the recession is over," said Mickey Levy, chief economist at Bank of America in New York. "The Fed is not at the point where it is willing to say the recovery is sustainable."
Two-year Treasury notes were little changed at 4:25 p.m. in New York, with yields at 0.84 percent. The dollar strengthened 0.2 percent to 89.79 yen from 89.61 yen late yesterday.
Benchmark Rate Unchanged
Officials kept their benchmark overnight lending rate between banks in a range of zero to 0.25 percent, where it has been for a year. Policy makers restated that low interest rates are contingent on "low rates of resource utilization, subdued inflation trends, and stable inflation expectations." The decision was unanimous.
The consumer price index, minus food and energy, rose 1.7 percent for the 12 months ending November, unchanged from October, the Labor Department reported today.
The Fed also said it will continue purchases of agency mortgage-backed securities totaling $1.25 trillion and about $175 billion of agency debt through the first quarter of next year.
"Financial market conditions have become more supportive of economic growth," today's FOMC statement said.
With improvements in the functioning of markets, the FOMC and the Fed's Board of Governors reiterated that "most of the Federal Reserve's special liquidity facilities will expire on Feb. 1 2010," including programs to backstop money-market mutual funds and commercial paper.
Swap Arrangements
"The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010," the statement said, referring to auctions of loans to commercial banks. The Fed also said it's working with other central banks to close temporary liquidity swap arrangements by Feb. 1.
Reports last week suggested the expansion that started in the third quarter is accelerating. Retail sales climbed 1.3 percent in November, twice as much as anticipated in a Bloomberg News survey of economists. Inventories rose in October for the first time since August 2008, and exports in the same month increased to the highest levels in 11 months.
The numbers prompted economists at Goldman Sachs Group Inc. and JPMorgan Chase & Co. to raise their forecasts for fourth quarter growth by a full percentage point.
JPMorgan lifted its estimate to a 4.5 percent annual rate, and Goldman economists increased their estimate to 4 percent. Gross domestic product grew 2.8 percent in the third quarter after shrinking for each of the previous four quarters.
'Improving Trajectory'
"We are on a gradually improving trajectory for the economy as a whole, as well as the broad health of the financial market, which is what the Fed is hoping to see and that seems to be coming to fruition," said Chris Molumphy, who oversees more than $180 billion as chief investment officer for fixed income at San Mateo, California-based Franklin Templeton.
Employers cut payrolls by 11,000 jobs in November, the fewest in 23 months, and the unemployment rate fell to 10 percent from 10.2 percent. The economy has lost 7.2 million jobs since the recession began in December 2007.
Bernanke said in a Dec. 3 speech that the economy still faces "formidable headwinds" in the form of tight credit and a weak labor market.
Each of the last three recessions has seen a slow recovery in employment, though the jobless rate is higher now than at the end of the previous two slumps.
The unemployment rate continued to rise past the November 2001 trough in economic activity, peaking at 6.3 percent in June of 2003. The prior recession ended in March of 1991, and unemployment continued to rise until peaking in June 1992 at 7.8 percent.
Consumer Spending
Consumer spending, which fell the most since 1980 during the recession, rose to $9.25 trillion on an annual basis in the third quarter. Purchases were still below the pre-recession peak of $9.36 trillion in the fourth quarter of 2007.
By contrast, consumption grew every quarter of the March to November 2001 recession. In the 1990 slump, which began in the third quarter of that year, consumption surpassed the pre- recession peak in the third quarter of 1991. The downturn ended in the first quarter of that year.
General Electric Co. is ready to go "back on offense" next year after slimming its portfolio and maneuvering through the worst of the finance arm's challenges, Chief Executive Officer Jeffrey Immelt said during his annual investor meeting in New York yesterday.
Sales Improve
Caterpillar Inc., the world's largest maker of bulldozers and excavators, aims to bring back some laid-off workers next year as sales improve, Chief Executive Officer Jim Owens said in a Bloomberg TV interview on Dec. 11. The company cut about 18,700 full-time jobs since Dec. 2008 as the global recession eroded demand.
Fed officials said last month the economy will grow 2.5 to 3.5 percent next year, fast enough to bring the unemployment rate down only to 9.3 to 9.7 percent in the fourth quarter, according to their central tendency estimates.
Factories in the U.S. made more goods in November than anticipated, extending a rebound in manufacturing that will give the world's largest economy a lift into 2010. Production in November was still below the average level of the past two years.
Bernanke, a 56-year-old former Princeton University professor, has focused on restoring liquidity and credit in the U.S. financial system, expanding the central bank's balance sheet to $2.18 trillion in the process.
The Standard and Poor's 500 Index is up about 23 percent this year. The Fed's mortgage purchases helped push rates on a 30-year fixed-rate loan to 4.71 in the week ending Dec. 3, the lowest since mortgage buyer Freddie Mac of McLean, Virginia began keeping records in 1971.
To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net
Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphoneEnvoyé de mon iPhone
0 commentaires:
Enregistrer un commentaire