Fed Keeps Target Rate and Asset Purchases Unchanged

The U.S. Federal Reserve maintained the status quo on Wednesday. It kept rates unchanged, as expected, and maintained the amount of Treasuries, mortgage-backed securities and government sponsored enterprise (GSE) assets it intends to purchase.

The Fed said it will evaluate the timing and amount of future asset purchases over time, and that the vote to keep the program as is was unanimous.

In the monetary policy statement, the central bank said there are some signs that the economic outlook is improving, including stabilization in consumer spending and a slower pace of economic contraction.

As for price stability, the Fed recognized that inflation will remain below desirable levels for some time.

U.S. Advance First-Quarter GDP Plummets Beyond Expectations

Advance GDP for the first quarter of 2009 contracted 6.1% against expectations of a 4.7% decline. The previous quarter's 6.3% contraction was unrevised. The negative figure is the fifth decline in quarterly GDP since the credit crisis began in August 2007.

Prior to the release, forecasts ranged from an 8.0% contraction to a 2.8% decline. Personal consumption, which accounts for 70% of GDP in the U.S., grew by 2.2% in the quarter, against expectations of a 0.9% jump and up from the 4.3% contraction in Q4.

Leading the slowdown was a 51.8% contraction in gross private investment, including a 37.9% cutback to nonresidential spending and a 37.9% slowdown in fixed investment.

U.S. Oil Inventories Continue to Climb, Gasoline Stockpiles Tumble

U.S. weekly oil supplies rose to a fresh 19-year high, while gasoline supplies unexpectedly fell, government inventory data revealed on Wednesday.

Crude oil inventories increased 4053k compared to the +1800k consensus, the U.S. Energy Information Administration (EIA) said. It was the eighth consecutive weekly build and brings total U.S. inventories to the highest level since 1990.

Gasoline supplies decreased 4695k barrels compared to the +200k consensus estimate. Distillate supply figures were bearish; the EIA said supplies increased by 1794k compared to expectations of a 1000k build. The data was for the reference week April 24.

German Economy to Shrink 6% in 2009

The German Economics Ministry has revised its growth forecasts and now expects the economy to contract by 6% in 2009, its sharpest fall since reunification. The previous forecast issued by the government had suggested a less pronounced contraction of 2.25% for the year.

Speaking in Berlin following the German government's updated economic forecast release, German Economics Minister Karl-Theodor zu Guttenberg called the growth forecasts "realistic" and "pragmatic." According to the forecasts, the economic decline would be led by exports, which are projected to fall 18.8% this year. Imports are also expected to lose ground, with projections pointing to a decline of 10.6%.

ECB's Stark Says Alternative Policy Will Only Be Used When Rates Reach Floor

The European Central Bank (ECB) will use alternative monetary policy once rates reach the so-called "floor," according to ECB Governing Council Member Jurgen Stark, who spoke in Siegen, Germany on Wednesday.

Although the ECB continues to have moderate room to lower interest rates, one must keep in mind the limitations of monetary policy, said the central banker, who stressed that the Anglo-Saxon monetary policy model may not be appropriate for Europe.

He also said there is only a low risk of deflation in the euro zone, and that there are signs that the global downturn is easing. He said the current economic crisis is not as bad as in the Great Depression.

ECB's Weber Says German Economy Won't Recover Before 2010

European Central Bank council member Axel Weber said Wednesday that he does not take too much stock from the so-called "green shoots" in economic indicators, and that the German economy will severely contract in 2009. The German economy is in a "severe recession," he said.

Economic growth isn't possible before 2010, he said, adding that first-quarter growth will be worse than in the fourth quarter, and hard data will continue to be negative. However, he said German politicians should resist calls for more fiscal stimulus.

Canadian Gas Prices at the Pump Fall Slightly

The average price of gas in Canada fell slightly in the week ending April 28, according to Calgary-based MJ Ervin & Associates. The average price of regular unleaded gasoline in Canada fell 0.4 cents to $0.887, well off the peak of $1.40 per litre reached in July 2008.

The weekly survey showed Edmonton had the lowest average price in the country at $0.794, down 0.1 cents from the prior week. For the second week, Labrador City, Nfld. had the highest price in the country, with prices up 1.5 cents to $1.056 per litre.

By Ernest Hoffman, This email address is being protected from spam bots, you need Javascript enabled to view it and Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it and Megan Ainscow, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

CEP Newswires - CEP News © 2009. All Rights Reserved. www.economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.