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The New Economy

FOMC statement: US economy has picked up

With its FOMC statement, Federal Reserve says it will slow debt purchases.

By / September 23, 2009



Central bankers are getting to sound like cheerleaders – not sideline entertainers, perhaps, but those with "hurrahs" that can work investors and bankers into a froth.

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When the Fed stated Wednesday that "economic activity has picked up following its severe downturn," the Dow Jones Industrial Average jumped 70 points before fizzling.

Germany's DAX index has risen nearly 8 percent since Sept. 3, when the European Central Bank said the eurozone was "stabilizing further" in the third quarter and would continue to benefit from a rebound in exports and further stimulus.

"Japan's economic conditions are showing signs of recovery," the Bank of Japan said last week.

Among major central banks, only the Bank of England is sounding a little dour. It, too, saw the possible "start of a virtuous upward spiral for the economy" in the near term. But in minutes of its Sept. 10 meeting released Wednesday, it also warned "there could be false dawns" before the real expansion takes place.

Like all the central banks, the Fed said Wednesday that it anticipated keeping interest rates low for some time.

That's worrisome for those who believe that so much easy money pumped into the global economy will inevitably lead to hyperinflation.

But the Fed did say it would slow its purchases of debt from federal mortgage-backers such as Fannie Mae and Freddie Mac. The purchases are intended to keep mortgage rates low. The central bank now expects to wind up that program by the end of the first quarter next year.
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