- The Washington Times - Thursday, December 17, 2009

The Federal Reserve provided a more upbeat assessment on the economy Wednesday, noting that steep job losses appear to be on the wane and consumers are starting to spend again.

In a statement after a two-day meeting of its rate-setting committee, the Fed said it would maintain interest rates at “exceptionally low” levels near zero “for an extended period” to ensure the economy keeps recovering from its deepest recession since World War II.

“Economic activity continues to pick up and the deterioration in the labor market is abating,” the Fed said. “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.”

In an announcement closely watched by financial markets, the Fed said it would continue to remove the extraordinary stimulus it provided to credit and money markets in the past two years as the economy recovers. The Fed ended its purchases of Treasury securities this fall, and remains on track to stop purchasing much of the nation’s mortgage-backed securities by the end of March.

In addition, the Fed announced plans to terminate programs it established during the financial crisis a year ago to provide emergency loans to Wall Street brokers and rebuild the shattered commercial paper market.

The termination of the emergency programs is aimed at assuring investors who are increasingly worried about a return of inflation once the economy recovers, fueled by the Fed’s easy-money policies.

The Fed remained confident that inflation would stay at bay, however, saying it expects inflation would be subdued as long as the economy remains slack, with businesses operating at only a fraction of their capacity to produce and unemployment at 26-year highs over 10 percent.

For last month, the Consumer Price Index, the most closely watched inflation barometer, rose 0.4 percent. That was up from a 0.3 percent increase in October.

The government said energy prices rose 4.1 percent, reflecting more expensive fuel oil and gasoline. Energy prices, though, are already in retreat. Oil prices are down about 10 percent this month.

At the same time, home construction rebounded in November after a setback in October. And applications for new building permits - a gauge of future activity - rose more than economists had predicted

The Dow Jones Industrial Average fell 10.88, or 0.1 percent, to 10,441.12, after rising as much as 58 points.

The broader Standard & Poor’s 500 Index rose 1.25, or 0.1 percent, 1,109.18. It is up 22.8 percent for the year. The Nasdaq Composite Index rose 5.86, or 0.3 percent, to 2,206.91.

Bond prices mostly fell, pushing yields higher, following the Fed’s more upbeat assessment of the economy. The yield on the benchmark 10-year Treasury note was flat at 3.60 percent from late Tuesday.

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