Fed Sees 'Possibility Of A Prolonged Contraction'

The Federal Reserve released the minutes from the last monetary policy meeting over December 15th and 16th; and their observations were discouraging. Though the Federal Open Market Committee decided to lower the benchmark lending rate to encompass a range between zero and 0.25 percent (a record low under modern policy efforts), it was clear from their forecasts that policy makers would have to come up with additional measures to turn the economy and stabilize credit conditions. Among the notable comments made, officials said "the economic outlook would remain week...and the downside risks to economic activity would be substantial." Furthermore, the more pessimistic members of the group saw "a distinct possibility of a prolonged contraction" as stubbornly tight credit conditions for businesses and consumers prevented a recovery. As for inflation, they seem uncertain as to whether this economic influence will be a boon or burden. Prices are expected to diminish further "because of the emergence of substantial slack in resource utilization and diminishing pricing power" and could "persist for a time at uncomfortably low levels." Typically low prices meets an equilibrium with demand and eventually encourages a rebound in consumption; but sustained contractions could tip the economy into deflation, which brings a whole new set of problems. Considering recent speeches by policy officials and official Fed chatter, it is clear that policy group will look to increase its balance sheet by holding toxic debt; but whether this will hurt or hinder the US economy and dollar remains to be seen. So far, efforts aimed at quantitative easing have yielded little beyond a larger debt for the US government.

DailyFX

Disclaimer

Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.