Randomly Noted

The great anticipation about what the Federal Reserve would say about the state of the economy and the status of its non-traditional policy operations was met, essentially, with steady as she goes.

A phrase was coined. “Leveling out” is the way the U.S. central bank today described economic activity. That’s synonymous with bottoming out, one presumes, and the taken together the two words leveling out imply a process still ongoing rather than one completed.

It’s a flexible phrase, as well. Leveling out means there still could be more dips, the technical bottom in economic activity hasn’t necessarily been reached, but a new, sharp downturn is not at all anctipated.

In these weeks of maximum bullish interpretations being applied to at most relatively good news about the economy (a decline of a quarter-million jobs in a month is positive because it’s less than half the pace of losses in earlier months of 2009) we’ll take leveling out.

Leveling out also means it is still too early to talk seriously about “exit” strategies or even warm the financial markets up for an exit strategy. The Fed is still, and should still be concentrated solely on functioning financial markets and a recovering economy.

A couple months back some of the Fed’s non-traditional policies aimed at buying up various types of securities incited an inflation fear wave that palyed havoc with teh long end of the tReasurys markets and threatened to kick mortgage rates too high to help the ailing sector.

That seems to have passed. Maybe it was Fed Chairman Ben Bernanke’s Wall Street Journal “op-ed” in each he said, in effect, here;s the outline of our “exit” strategy when we need to implement it. Doesn’t it make sense?

Today, the Fed repeated that inflation is not the issue. It noted some increase in energy and other commodity prices. But added the Federal Open Market Committee was confident “that inflation will remain subdued for some time” because there’s still “substantial resource slack.”

There was speculation about what the Fed would do about its controversial $300 billion kitty to buy Treasury securities.  It is supposed to end Sept. 1. Would the Fed increase the dollar amount? Would it let the program expire as planned? The Fed essentially split teh difference. No new funds, but a new buying deadline, the end of October.

This seems prudent. If the Fed needs a bit more interventionist ammunition it keeps some powder for a couple more months. If it wants remaining purchases to have little impact on a deep market it can do so by spreading them out.

This summer we’ve learned quite a lot about the cost of doing business in China, thanks to the Rio Tinto case, and the Green Dam web-filtering software fracas. Today, we were reminded of something we already knew: that foreign firms which want to  do business in China usually, if not always, have to go through some sort of Chinese entity. What happened today is the World Trade Organization ruled against China for forcing U.S. media producers to route their business in China through Chinese state-owned firms. This echoes last year’s settlement in which China agreed that the state-run Xinhua news agency would no longer serve as sales agent and regulator of foreign providers of financial information even as it competed against them. (Full disclosure: this case affected Dow Jones and our competitors.) All this – Rio, Green Dam, WTO, Xinhua and more – adds up to a litany of business hazards to those venturing into China. As I’ve written before, however, none of this will stop the flow of foreign firms into China. It will just make Chinese commerce costlier. Surely, CFOs and corporate risk managers ’round the world are tapping fresh figures into their calculators as they assess what it takes to compete in China circa August 2009. Low labor costs, a fast-growing economy (at an 8% annual pace despite the economic crisis), a rising middle class, vast regions populated by increasingly modern factories – it still amounts to a compelling proposition despite China’s statist, anti-WTO and anti-competitive tendencies. We should prepare for many more years of WTO cases as China, which joined the organization in 2001, clings to its practices as Beijing’s leadership weans its business and political cadres off the goodies they’ve grown accustomed to while “partnering” with foreigners. It will take many years, and certainly an economic crisis isn’t the time for the central government to deprive too many influential colleagues of their livelihoods.