Thread: Fed Warns Economy May Take Five or Six Years to Recover

Fed Warns Economy May Take Five or Six Years to Recover

Wednesday, 14 Jul 2010 03:08 PM
By: Frank McGuire

Fed officials fear it will take some time for the economy to attain sustainable rates of output growth, unemployment, and inflation, according to minutes of their June meeting. Most Fed officials feel that will take "no more than five to six years." )

Federal Reserve officials now fear that the U.S. economy will take at least five or six years to fully recover from the biggest economic downturn since the Great Depression.

Fed officials at their June meeting cut their forecasts for economic growth this year while taking a slightly dimmer view of the economy than they did in April.

Fed officials concluded that the "economic outlook had softened somewhat." One-half of Fed officials said they saw "risks to growth as having moved to the downside."

Minutes of their June meeting, released Wednesday, said Fed officials expect that it will “take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation."

The report said that most Fed officials "expected the convergence process to take no more than five to six years."

Fed officials also trimmed their forecasts for growth this year to a range of between 3 percent and 3.5 percent from the 3.2 percent to 3.7 percent they projected in May.

The report revealed a more cautious mood among the Fed policymakers in light of Europe's debt crisis, a volatile Wall Street, a stalled housing market and high unemployment, the Associated Press reported.

With risks now growing, Fed officials at their June 22-23 meeting saw the need to explore new options for bolstering the economy. That is a turnaround from earlier this year when they were moving to wind down crisis-era supports. But no new specific steps were disclosed or agreed upon.

Fed Chairman Ben Bernanke and his colleagues agreed to hold a key interest rate at a record low near zero to help revive the economy. They repeated a pledge to keep rates there for an "extended period."

Fed policymakers said they didn't think the slowing in the economy seen so far warranted new stimulative actions besides those now in place, according to the minutes of the June meeting.

However, Fed officials said the central bank "would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," the minutes stated.

The minutes showed Fed officials also revised down modestly their outlook for inflation, Reuters reported.

Some participants in the meeting saw risks that inflation might slide lower, and a few were worried about a dangerous deflationary spiral.

http://www.moneynews.com/Headline/Fed,E ... /id/364650

5 to 6 years? It sure didn't take them that long to ruin it. Things were getting better as recently as spring of 2008.

been tell'n ya over and over. We are in year 2 of a 10 - 12 year depression

the Fed is giving you very optimistic numbers in stating 5-6 years

Fed Cuts Growth Outlook Amid Grim View of Economy, Jobs

Wednesday, 14 Jul 2010 02:06 PM

Federal Reserve officials have a slightly dimmer view of the economy than they did in April, reflecting worries about how the European debt crisis could affect U.S. growth and job prospects.

Fed officials said Wednesday in an updated economic forecast that they think the economy, as measured by the gross domestic product, will grow between 3 percent and 3.5 percent this year. That's a downward revision from a growth range in their April forecast of 3.2 percent to 3.7 percent.

The Fed's latest forecast sees the unemployment rate, now at 9.5 percent, possibly staying at that figure or in the best case falling to 9.2 percent. In the April forecast, the Fed had a slightly lower bottom number of 9.1 percent.

The Fed said in the minutes of its June 22-23 meeting that its lower economic projections reflected "economic developments abroad" — a reference to the debt crisis that began in Greece and threatened to spread to other European countries.

While reducing the forecast for growth and employment, the Fed also saw less of a threat from inflation.

The Fed predicted that a key inflation gauge that's tied to consumer spending would show prices rising 1 percent to 1.1 percent this year. That's down from an April forecast that consumer prices would increase by 1.2 percent to 1.5 percent.

The absence of inflationary pressures gives the Fed leeway to keep interest rates low to try to bolster growth as the economy recovers from the deepest recession since the 1930s.

The new forecast was compiled at the last meeting of the Fed's interest rate-setting Federal Open Market Committee on June 22-23. At that meeting, the FOMC, which is composed of Fed board members and the 12 Fed regional bank presidents, kept a key rate at a record low of 0 to 0.25 percent, where it's been since December 2008.

http://www.moneynews.com/FinanceNews/US ... /id/364639

Some Fed Officials Want More Easing If Outlook Worsens

Wednesday, 14 Jul 2010 02:42 PM

Federal Reserve officials felt last month they should be ready to consider additional steps to boost the U.S. economy if an already softening outlook took a noticeable turn for the worse.

"As a result of the change in financial conditions, most participants revised down slightly their outlook for economic growth," minutes of the June 22-23 meeting of the Fed's policy panel released on Wednesday said.

"The committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," they said.

At the same time, the Fed should continue to test ways to withdraw some of the massive amounts of credit it has pumped into the financial system, officials at the central bank agreed.

Fed officials trimmed their forecasts for growth this year to a range of between 3 percent and 3.5 percent from the 3.2 percent to 3.7 percent they projected in May.

They see the unemployment rate, which stood at 9.5 percent in June, averaging about 9.2 percent to 9.5 percent in the fourth quarter, little changed from their previous quarterly forecast.

Yields for the 30-year Treasury bond fell on the news as investors ratcheted back expectations for a tightening in U.S. monetary policy next year.

"It suggests that rates are going to stay low for a long time and if necessary the Fed will try to conjure up some other ways to support the economy," Ward McCarthy, chief financial economist at Jefferies & Co. in New York, said of the minutes.

The Fed had struck a cautious tone about the economy in a statement it issued after its June meeting, saying only that the recovery is "proceeding." It renewed its promise to hold benchmark rates, which are near zero, at exceptionally low levels for an extended period.

The minutes showed Fed officials also revised down modestly their outlook for inflation. Some participants in the meeting saw risks that inflation might slide lower, and a few were worried about a dangerous deflationary spiral.

The minutes revealed that the Fed in general saw the flagging of the recovery as modest enough not to call for any additional easing beyond what is already in place.

http://www.moneynews.com/FinanceNews/US ... /id/364648