US Federal Reserve Leaves Things Unchanged

By: Dr. Mike Campbell

Data just released by the National Bureau of Economic Research suggests that the global financial recession has provoked America’s longest recession since World War 2, lasting 18 months. A recession is defined as being any period where an economy contracts for two consecutive quarters; it is generally considered to be over when the data show a return to growth. Of course, after a deep recession such as the one we have just experience, return to growth (from a low economic base) does not mean that people’s problems have been solved – as the unemployment figures testify.

On the back of this revelation (but not because of it), the US Federal Reserve has decided not to take any action at the moment to stimulate the US economy, but has hinted that it may do so in the future. Interest rates have been left on hold, yet again. The rate has been close to zero since December 2008. Fed watchers have noted that the Reserve is becoming increasingly concerned about sluggishness in the US economy a fact revealed by subtle changes in the language being used by them. In a statement, the Federal Reserve said it would "continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate". It is considered likely that the Reserve will need to pump fresh liquidity into the economy if the pace of the “recovery” doesn’t pick up soon. The Federal Reserve has already injected $1.7 trillion into the economy through the purchase of US government bonds and mortgage securities.