Federal Reserve sees rebound in second half of
2009
Posted: 16 July 2009 0221 hrs
Photos 1 of
1 
US Federal Reserve building
WASHINGTON: The Federal Reserve said on Wednesday the
recession-bound US economy is headed toward a second-half recovery
and that this would likely lead to an easing of its unprecedented
stimulus efforts.
The central bank raised its outlook for 2009 and 2010, saying a
rebound in the second half of 2009 that would leave the economic
contraction for the year at between 1.0 and 1.5 percent.
Although it gave no detailed forecast for the second half of 2009,
the rebound would have to be robust to offset the 5.5 percent pace
of decline in the first quarter, on the heels of a 6.3 percent
slide in the fourth quarter of 2008.
For 2010, the new Fed saw growth in a range of 2.1 to 3.3 percent,
slightly better than its forecast from April. For 2011, the Fed
called for growth in a range of 3.8 to 4.6 percent.
The new forecast came in projections released with minutes of the
Federal Open Market Committee from June, along with comments from
Fed members and a discussion of the central bank's staff
forecast.
"Almost all participants viewed the near-term outlook for domestic
output as having improved modestly relative to the projections they
made at the time of the April FOMC meeting, reflecting both a
slightly less severe contraction in the first half of 2009 and a
moderately stronger, but still sluggish, recovery in the second
half," the document said.
The Fed said its staff economists also raised their outlook based
on recent data even though the rate of unemployment was higher than
expected.
"In the forecast prepared for the June meeting, the staff revised
upward its outlook for economic activity during the remainder of
2009 and for 2010," the report said.
"Consumer spending appeared to have stabilised since the start of
the year, sales and starts of new homes were flattening out, and
the recent declines in capital spending did not look as severe as
those that had occurred around the turn of the year."
The report added: "Moreover, it seemed likely that economic
activity was in the process of levelling out, and the considerable
improvements in financial markets over recent months were likely to
lend further support to aggregate demand."
Although the overall economic outlook was better, the Fed also
raised its forecast for unemployment, saying the jobless rate would
peak this year in a range of 9.8 to 10.1 percent, compared with its
April forecast of 9.2 to 9.6 percent.
The Fed also addressed concerns about its ability to end an
unprecedented effort to stimulate the economy by making credit
available at ultra-low rates to a variety of financial
institutions.
"Ensuring that policy accommodation can ultimately be withdrawn
smoothly and at the appropriate time would remain a top priority of
the Federal Reserve," the Fed said.
The Fed pointed out a drop in demand for some of its special
programmes to get liquidity into the financial system in recent
months, noting that "market conditions had improved."
But the Fed said it had decided in June to maintain these
programmes and extend them into early 2010 because of a still
"fragile" financial system.
"Moreover, participants viewed the availability of the liquidity
facilities as a factor that had contributed to the reduction in
financial strains," the Fed report said.
"If the Federal Reserve's backup liquidity facilities were
terminated prematurely, such developments might put renewed
pressure on some financial institutions and markets and tighten
credit conditions for businesses and households."
It noted that the year-end period "was seen as posing heightened
risks given the usual pressures in financial markets at that
time."
As a result, the Fed extended most of the programmes into February
2010 but said that "improved market conditions and declining use of
the facilities warranted scaling back, suspending, or tightening
access to several programmes." - AFP/de