Fed Says "Economic Outlook Has Improved Modestly"

The Fed presented a slightly more upbeat assessment of the outlook for economy in today's statement and said that the "pace of contraction appears to be somewhat slower" than when policymakers met six weeks ago. The Fed pointed to consumer spending having "shown signs of stabilizing". While the statement was a step-up from the glum picture painted in early March, the bottom line is that the economy remains weak and did not lead policymakers to adjust their view that the Funds rate will remain in the current 0 to ¼ percent range for an "extended period" or alter their initiatives re credit and quantitative easing.

The statement outlined the details of the current credit and quantitative easing programs. Those looking for an extension or adjustment to these programs were disappointed as the statement said only that "the Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets." The Fed also reiterated that "The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments."

After today's report showing an unexpectedly sharp drop in GDP of 6.1% at an annualized rate in the first quarter, the statement was a breath of fresh air with policymakers focusing on the positive impact of the easing in financial conditions on consumer spending. On the current assessment of inflation, the Fed's statement echoed the March report. However looking forward, they reiterated the view that recent actions "will contribute to a gradual resumption of sustainable economic growth" though adding that this would occur within "a context of price stability." This addition seems to be aimed at addressing concerns that all the liquidity injections will eventually sow the seeds for a future inflation problem.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.