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Fed Adopts Cautious Outlook on Pace of Economic Recovery

15 July 2010 - News - Editor

The minutes of the US Federal Reserve's meeting on June 23 were released on Wednesday, revealing that the Fed is being somewhat cautious, if not pessimistic, with regard to the pace of economic recovery. This resulted in markets finishing flat yesterday, despite the Obama administration's assurances that the $787 billion stimulus plan is working. As reported by the Council of Economic Advisers (CEA) on Wednesday, around three million jobs have either been created or saved from redundancy. This figure measures up to the expectations of the CEA which was aiming to save 3.5 million jobs by the end of the year, as noted by CEA chairperson Christina Romer. The validity of this number has been openly questioned by economists and Congressional Republicans because it has not been confirmed with an actual headcount of workers who are currently employed as a direct result of stimulus funds. The general opinion is that the actual number is substantially lower than reported. This would be supported by the fact that, while the CEA predicted in January 2009 that the unemployment rate would remain at around 7 percent, the figure has been adjusted by the Obama administration to 9.8 percent for the end of 2010.

Nevertheless, the catchphrase of the moment is "Summer of Recovery" with the US government paying out $116.3 billion in stimulus funds, primarily in the form of tax cuts and project spending, during the second quarter of this year. Republicans continue to point out that the unemployment rate indicates American citizens are not seeing any appreciable benefit from the so-called Summer of Recovery. Statistics reveal that 125,000 Americans lost their jobs in June, with more than 8 million jobs having been lost since the start of the recession.

Wednesday saw markets see-sawing between gains and losses throughout the day before ending the day largely unchanged. The minutes of the Federal Reserve's June meeting indicate that 2011 is likely to see a much slower economic recovery rate than recent expectations. Intel's record sales for the second quarter, and upbeat forecast for the third quarter, saved the day for the Nasdaq composite index, which rose 7.81 points (0.35 percent), while the Dow Jones industrial average rose 3.7 point (0.04 percent) and Standard & Poor's 500 fell 0.17 of a point.

 


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