David Kirkpatrick

February 19, 2009

FOMC outlook bleak

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 1:06 pm

It’s been bleak and now it’s worsening.

From the link:

The U.S. economy was weakening further in January and a gradual recovery wasn’t likely until the second half of the year, members of the Federal Open Market Committee agreed, according to minutes of the Jan. 27 and 28 meeting released on Wednesday.

At the meeting, the committee held its interest-rate target near zero, and promised that it would “employ all available tools” to restore the economy to growth.

Many policymakers saw some risk of excessively low inflation for a protracted period, the minutes said, and a few even warned of deflation – a general decline of prices and wages.

According to the minutes, the FOMC’s updated forecasts predict that the economy would likely shrink between 1.3% and 0.5% this year, and grow about 2.5% to 3.3% in 2010. The unemployment rate would likely rise to 8.5% to 8.8% this year before gradually declining over the next two years. The group said consumer prices would likely rise 0.3% to 1% this year.

The outlook is considerably worse than in October, when they thought the economy might grow as much as 1.1%.

The minutes also contain the FOMC’s first public long-term economic projections, a step closer to adopting a formal inflation target. Among the 16 governors and bank presidents, the central tendency for long-term inflation was 1.7% to 2%, with a majority clustering at 1.9% or 2%.

January 16, 2009

The Fed’s still freaking

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 4:21 pm

Hopefully Obama’s economic team can do something to staunch this spate of chicken little news out of the governing bodies that are overseeing this mess.

From the link:

Top Federal Reserve policy-makers hammered home their worries about the U.S. economy’s downward spiral on Thursday, urging aggressive action on all policy fronts as deflationary forces gather and many banks face new pressure.

Well-functioning credit markets remain critical to any economic upturn, and the Fed may need to expand its use of unorthodox policy tools, the officials said.

Janet Yellen, President of the San Francisco Fed, said the central bank would not let inflation fall below one percent, and that setting inflation targets would be “one way” to convey the Fed’s commitment to a turnaround.

“We need to make it clear that would be undesirable, unwelcome and we would fight it,” Yellen told reporters after a speech to the Financial Women’s Association in San Francisco.

January 6, 2009

Watch out for deflation

You may be lamenting the outrageous cost of the bailout, you might have been hurt by the credit crunch and you are most likely gearing up for a 2009 full of only one certainty — that the entire year will be filled with nothing but uncertainty.

After all that, who’s this boogyman breathing hot, rancid air down the back of your neck? Deflation.

From the link:

Deflation, the steadily falling prices that are a byproduct of the virulent global recession and financial-market weakness, has emerged as a top danger for monetary policy markets in the U.S. and Europe, top central bankers made clear Sunday.

In separate comments, Lucas Papademos, the number-two official at the European Central Bank, and Janet Yellen, president of the San Francisco Federal Reserve Bank, and one of the most influential officials at the Fed, said that they would quickly seek to contain the danger of deflation if it emerges in coming months.

Their remarks came at he American Economics Association convention.

Yellen said the U.S. faces a clear risk of deflation: “The odds are high that over the next few years, inflation will decline below desirable levels.”

To keep falling prices from becoming entrenched, the Fed would have to make it clear to the financial markets that such an outcome is unacceptable.

“I am optimistic that, by clearly communicating the Fed’s commitment to low and stable inflation and by backing that commitment up with determined policy actions should the need arise, any deflationary pressures caused by the weak economy can be contained,” Yellen said.