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.