Fed Says Recession is Easing

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The Federal Reserve held a key bank lending rate at a record low of between zero and 0.25 percent, and pledged again to keep it there for the near future.   The Fed signaled today that the weak economy likely will keep prices stabled despite growing concerns that the trillions it’s pumping into the financial system will stir up inflation.    

Even though energy and other commodity prices have risen recently, the Fed said inflation will remain “subdued for some time.”   The Fed also decided to maintain existing programs intended to drive down rates on mortgages and other consumer debt.   Instead, the central bank again reserved the right to make changes if economic conditions warrant.

The Fed in March launched a $1.2 trillion effort to drive down interest rates to try to revive lending and get Americans to spend more freely again.   The Fed said it would spend up to $300 billion to buy long-term government bonds over six months and boost its purchases of mortgage securities. So far, the Fed has bought about $177.5 billion in Treasury bonds.   The Fed is on track to buy up to $1.25 trillion worth of securities issued by Fannie Mae and Freddie Mac by the end of this year.   Nearly $456 billion worth of those securities have been purchased.

Fed policymakers said its forceful actions, along with President Barack Obama’s stimulus of tax cuts and increased government spending will contribution to a “gradual “return to economic growth.  Bernanke has predicted the recession will end later this year.

Fed policymakers noted that consumer spending has shown signs of stabilizing but remains constrained by ongoing job losses, falling home values and hard-to-get credit.

Even after the recession ends, the recovery is likely to be tepid, which will push unemployment higher.   The nation’s unemployment rate — now at 9.4 percent — is expected to keep climbing into 2010. Acknowledging that the jobless rate is going to climb over 10 percent, President Barack Obama said Tuesday he’s not satisfied with the progress his administration has made on the economy. He defended his recovery package but said the aid must get out faster.

Consumer prices inched up 0.1 percent in May, but are down 1.3 percent over the last 12 months, the weakest annual showing since the 1950s. The Fed suggested companies won’t be in any position to raise prices given cautious consumers, big production cuts at factories and the weak employment climate.

Anna Timone (195 Posts)

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