No change from the US Federal Reserve on interest rates, and it said little that was positive about the economy, and a lot about how it intends doing, to get credit flowing through the economy.
The Fed made no change to its interest rate range this morning of 0% to 0.25%, and detailed plans to buy over $US1.1 trillion of debt issued by the likes of mortgage groups, Fannie Mae and Freddie Mac, and our US Government agency debt.
The news saw Wall Street surge from losses to up over 100 points: a 150 point turnaround in the space of 10 minutes.
The Fed’s Open Markets Committee met in Washington for two days and released its statement at 5.15 am today, Sydney time.
It indicated it would be looking to boost lending, especially to the housing sector, but there’s no move on rates for quite some time.
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
"The Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.
"Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."
The Fed’s meeting was held after chairman Ben Bernanke talked about ‘green shoots’ appearing in places in the US economy and how that if everything went OK, we could see a recovery in 2010.
But he talked about the lack of "political will" in the US (and in some other countries by implication) to really tackle hard issues about banks, financial stimulus and other changes needed to stabilise the slide and position economies for growth again.
Japan would be a prime offender not mentioned by name, but implicated by his comments about the lack of "will".
The International Monetary Fund yesterday changed Japan’s growth rate for 2009 to minus 5% from minus 2.6% earlier in January.
We have seen back to back retail sales figures in the US that could be seen as steadying with the sharp slumps seen late in 2008 no longer evident, and this week we saw the best new home start figures (and new home permit numbers) in 11 months.
New home building is still depressed, but it seems no longer to be plunging.
Inflation isn’t a worry, even though the US consumer price index rose by a bit more than expected last month.
The US trade deficit shrank again as exports fell and imports dropped noticeably as the recession chops demand.
Banks are doing better in the US and Asia and parts of Europe and headlines are now appearing in papers and on websites about ‘ducking the depression’ and ‘call off the depression’.
The keys to the economy remain unemployment, house prices and demand for housing and business investment.
Up to the close of business on Tuesday Wall Street is up more than 12%, with the Standard & Poor’s retailing index up 18% since a March 6 low.
The Dow Jones home construction index has risen 25% in the same time and bank and financial stocks are up sharply.
The $US787 billion stimulus package is now putting more money into consumers’ pockets, but its early days for any impact.
There are still plenty of things to kill the recovery: another financial disaster. The AIG bailout and bonus scandal is one that springs readily to mind.
Problems in some European banks and eastern Europe haven’t gone away and there are quite a few big Japanese banks and companies feeling the strain as that country moves quickly into the steepest decline it has seen in decades.
And a continued bleeding of jobs from big and medium level companies.
Italy’s biggest bank, UniCredit revealed it was seeking $US4 billion in aid from the Italian and Australian Governments.
Interestingly last Friday was the first Friday in over seven weeks when there wasn’t a bank closed in the US by regulators.
