David Kirkpatrick

May 21, 2009

Fed sees longer recession

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 2:50 pm

I hate to always blog about tough financial news or to dispute what I see as overly rosy near-term projections, but I think reality should trump blind wishes. Particularly when those wishes will most likely be dashed in short order.

In an interview I was asked my operating philosophy of life and my response was “optimistic pessimism,” which for me is a succinct way of saying I hope for the best and plan for the worst. Optimistic pessimism is a very prudent way to view the world’s economy in both bad and good times.

From the link:

Federal Reserve officials fear the recession is worse than recent projections and that the recovery could drag on for two years as unemployment continues to edge higher, according to the minutes from the Fed’s April meeting.

Some members noted that it might be necessary to raise the amounts of mortgage and Treasury securities purchased above the $1.75 trillion that the government has already committed to buying.

“Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery,” according to the minutes of the April 28-29 meeting.

The buying programs were put in place to create liquidity for these types of securities created from loans, and to serve as a catalyst for lending in an effort to thaw frozen credit markets.

The Federal Open Market Committee minutes are always released three weeks after the meeting is held. 

As widely expected, the Fed left a key interest rate alone at that meeting, leaving the target federal funds rate at a range near zero. 

Fed officials have said rates will stay “exceptionally low…for an extended period,” which some analysts have interpreted as meaning possibly into next year.

The economy looked a little brighter three weeks ago when Fed officials released a statement at the conclusion of their two-day meeting. Things are less rosy now.

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