Open

Coming up

Don't miss

Replay


LATEST SHOWS

DEBATE

Europe's Plan for Putin - Will Russian Leader Bend After New Sanctions? (part 2)

Read more

DEBATE

Europe's Plan for Putin - Will Russian Leader Bend After New Sanctions?

Read more

FOCUS

Pakistan's Ahmadis living in fear of extremist attacks

Read more

WEB NEWS

Web users show solidarity with Iraqi Christians

Read more

THE INTERVIEW

Gilles Kepel, Islamic and Arab world specialist

Read more

BUSINESS DAILY

Argentina braced for another debt default

Read more

DEBATE

Too Late for Sanctions? Pressure Mounts on Russia over Ukraine (part 2)

Read more

DEBATE

Too Late for Sanctions? Pressure Mounts on Russia over Ukraine

Read more

MEDIAWATCH

'What would you do?'

Read more

  • Deadly shelling strikes Gaza UN school

    Read more

  • Dozens killed in stampede at Guinea rap concert

    Read more

  • US and EU slap Russia with fresh sanctions over Ukraine

    Read more

  • 'Compelling' signs Kosovo leaders trafficked organs, prosecutor says

    Read more

  • Graphic: Ebola spreads across West Africa

    Read more

  • Islamists seize key Benghazi army base as fuel fire rages on

    Read more

  • In pictures: ن - a sign of support for Iraq’s persecuted Christians

    Read more

  • Calls mount to ban France’s ‘violent’ Jewish Defence League

    Read more

  • Venezuela: Hugo Chavez’s ‘little bird’ strikes again

    Read more

  • France extradites suspected Jewish Museum shooter to Belgium

    Read more

  • Video: How tourism is helping Rwanda’s gorillas, ex-poachers

    Read more

  • Rare Sri Lankan leopard cubs born in French zoo

    Read more

  • US says Russia violated arms treaty by testing cruise missile

    Read more

  • Karzai’s cousin killed in Afghan suicide attack

    Read more

Business

Fed to ease stimulus effort amid signs of recovery

Text by NEWS WIRES

Latest update : 2009-08-13

The US Federal Reserve says it will keep its short-term interest rate near zero but pull back on efforts to pump liquidity into the financial system amid tentative signs that the economy may be emerging from recession.

AFP - The Federal Reserve edged a step closer to acknowledging economic recovery Wednesday as it announced a scaling back of a massive effort to pump liquidity into the financial system, analysts said.
   
Concluding a two-day monetary policy meeting, the Federal Open Market Committee (FOMC) maintained its near-zero base interest rate while saying that "economic activity is leveling out" amid the deep recession.
   
As widely expected, the panel headed by Fed chairman Ben Bernanke said it "continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
   
The central bank also said it would begin to pull away from a massive effort to pump liquidity into the financial system through the purchase of Treasury bonds and mortgage-backed securities.
   
The 300-billion-dollar Treasury bond program will be completed by the end of October, the Fed said, extending the effort by one month.
   
Analysts said the move was a first step toward moving away from extraordinary support of the economy through what some call "quantitative easing" -- essentially printing money to pump into the system.
   
"The Fed is pulling back on one market support program of buying Treasuries but it is easing out of it," said Robert Brusca at FAO Economics.
   
"The Fed is getting less worried but is not at a point to depend on recovery yet or to bet on how strong it will become."
   
Joel Naroff at Naroff Economic Advisors said the minor change in the Fed statement saying the economy was "leveling out," replacing a June phrase that "the pace of economic contraction is slowing," was significant.
   
The change "indicates to me the members believe the recession is basically over," Naroff said.
   
The pullback on Treasury purchases -- an extraordinary effort by the central bank aimed at keeping down interest rates it cannot directly control -- was also positive, said Naroff.
   
"The Fed wants to turn the operations of the markets back over to the markets and this is one sign that they are prepared to do so, though at a very cautious pace," he said.
   
The FOMC said it would "gradually slow the pace" of Treasury bond purchases and that it "anticipates that the full amount will be purchased by the end of October."
   
Craig Alexander, deputy chief economist at TD Bank Financial, said the announcement suggested only a small improvement in the troubled financial system.
   
The slowing of Treasury purchases "is a reflection that the economic numbers are showing some improvement," Alexander said.
   
"But they are not going so far as saying the economy doesn't require" the extra support.
   
Alexander said that under the current circumstances, the Fed may keep its near-zero rate policy for as long as another year.
   
"I don't think there is an urgency to tighten policy anytime soon," he said.
   
"I don't believe economic growth is going to be strong in the coming quarters. There is an awful lot of slack in the economy."
   
Ryan Sweet at Moody's Economy.com said the Fed's decision to slow its Treasury purchases was "a somewhat surprising twist," but stopped short of a major shift.
   
"The Fed appears in no hurry to tighten monetary policy as the sustainability of the recovery is still debatable," Sweet said.
   
The Fed announcement came days after news that gross domestic product (GDP) -- the broad measure of the economy's activity -- fell at an annualized rate of 1.0 percent in the second quarter, after a 6.4 percent plunge in the January-March period.
   
Unemployment dipped unexpectedly in July to 9.4 percent, one-tenth point lower than the 26-year high hit in June as job losses narrowed to 247,000.
   
Brian Bethune, economist at IHS Global Insight, said Fed policy remains highly stimulative.
   
"The Fed is sticking to its guns and maintaining a relatively aggressive posture on policy in a situation where the economy is at a critical turning point and inflation is running below the Fed's desired target," he said.

Date created : 2009-08-13

COMMENT(S)