THE US central bank has given a slightly more upbeat outlook on the US economic recovery, saying that the labour market is “stabilising” and business spending on equipment has “risen significantly”.
However, the Federal Reserve yesterday signalled no imminent change in its monetary policy stance, with interest rates set to remain at 0-0.25 per cent for an “extended period”.
Inflation was likely to remain subdued “for some time”, the Fed said, indicating that policy makers were not expecting to face pressure to raise rates to combat spiking prices for now.
The Fed also confirmed that it would end its $1,250 billion programme to buy mortgage-backed securities to help the housing market during the crisis at the end of the month.
Fed observers were not expecting changes in the language on monetary policy but were listening for changes in the tone of its assessment of the US economy for hints about the timing of any move towards tighter monetary policy.
Ben Bernanke, Fed chairman, has been treading a careful line in recent months between signalling the central bank’s readiness to tighten monetary policy as the economy recovers and insisting that conditions are not yet ripe for such a move.
The US economy grew at an annualised rate of 5.9 per cent in the latest quarter, but the recession has culled 8.4 million jobs and destroyed nearly $14,000 billion in household wealth. Long-term unemployment has become a big concern, threatening structural changes to the country’s workforce as businesses learn to cope with fewer workers and the jobless see their skills erode. The housing market has also struggled to recover from the crisis.
“The key precondition for a shift in the Fed’s language is a clear and meaningful inflection in the rate of growth of credit, which can reasonably be expected to be sustained,” Ian Shepherdson, chief US economist at High Frequency Economics, said before the statement.
“We are not at that point yet and even clear gains in payrolls in the next few months will not necessarily change that very quickly,” he added. –(Copyright The Financial Times Limited 2010)
