FOMC Release Shows Signs of Improvementby Tim Manni
The tone of the statement following the Federal Open Market Committee’s (FOMC) April 28-29 meeting is, if anything, less pessimistic than it has been in previous months. Despite the economy’s continued decline, the “pace of contraction appears to be somewhat slower,” reported the committee.
As has been the case with these meetings since the end of last year, the rate cut (or lack thereof) has no longer been the top story. Rather, it has been the implementation or expansion of new Federal initiatives designed to improve market conditions. The fact that no new or expanding program has been announced, signals that conditions have improved enough that additional government intervention is not warranted at least at the moment.
The FOMC feels that due to “increasing economic slack here and abroad,” the threat of inflation will remained “subdued” for some time to come (for how long, we don’t know). At the same time, the committee says that deflationary or “disinflationary” conditions are likely to persist, hampering the country’s immediate ability to “foster economic growth and price stability in the longer term.”
Outright deflation has happened in real estate, but has also been seen in certain commodities, too. Falling prices make it more difficult for consumers and businesses to make money by selling goods. Yesterday’s Gross Domestic Product (GDP) report, ” the sum of all goods and services produced,” fell at an annual pace of 6.1%.
Putting the Pieces Back Together
The next, and most difficult challenge the Fed will face will be how to, as HSH Vice President Keith Gumbinger puts it, “de-engineer these massive support programs over the next 6-12 months.” Author Andy Kessler referred to the difficult process as “putting the toothpaste back into the tube.”
At the moment, the experts say that conditions are improving and that a economic bottom is forming. The upcoming battle for the Fed to “de-engineer” our spending programs will be a rocky but necessary road to travel.
The minutes from April’s meeting are due to be released in about three weeks. The minutes will provide a more in-depth analysis of the discussions surround this meeting. The next FOMC meeting is scheduled for June 23-24.