Tuesday, September 22, 2009
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Today Eye On Fed Meet :-
Federal Reserve Chairman Ben Bernanke has said that the recession is "very likely over," but the Fed isn't acting like we're in a recovery.
Economists widely believe the central bank will keep interest rates between 0% and 0.25% at the conclusion of its two-day meeting Wednesday. The Fed is also expected to say very little about its plans to wind down more than a trillion dollars in lending and bailout programs, and it will likely stay away from any overly enthusiastic language about the economic outlook.
"This will be one the quietest Fed meetings in quite some time," said Rich Yamarone, director of economic research at Argus Research. "The last thing they want to do at this stage of the game is to upset the apple cart. They're liking what they're seeing in some of the economic data, so it's just steady as she goes."
The Fed uses its rate-setting tool in an attempt to balance unemployment and inflation, typically lowering rates during a recession to boost economic activity and raising rates coming out of a downturn to stave off rampant inflation.
But experts argue that the recovery from this recession is so tenuous that the Fed is right to keep its finger off the rate-hike button for now.
"The Fed normally anticipates the recovery by raising rates, taking away the punch bowl just as the party gets interesting," said Peter Morici, professor of economics at the University of Maryland. "But this is not a normal recovery. It's tepid and weak."
Unemployment is still rising, retail sales are far from robust, manufacturers' capacity utilization remains at ultra-low levels and wages are still depressed. Home sales and new home construction are making a comeback, but they're coming off of historic lows.
Inflation not an issue for now: As a result of the still shaky economy and low consumer confidence, concerns about inflation have been mostly muted.
"If people aren't spending the money, you can't have inflation," said Morici. "If Bernanke puts a pile of money out on the street, it doesn't count if it doesn't chase goods."