Feds Downgrade Economic Outlook

The United States Federal Reserve will meet on Tuesday and is expected to announce a downgrade of the economic outlook while finding ways to jump-start the struggling economy.

Amid a possible double-dip recession and persistently weak economic numbers in recent periods, the Federal Open Market Committee (FMOC) is careful not to impose any policy changes that will stifle new growth, but at the same time, it is also not eager to implement big changes to spur growth.

A minor change that the committee may pursue is to reinvest proceeds from mortgage-backed securities held by the Central Bank which are maturing, thus preventing the federal balance sheet from shrinking.

Federal Reserve chairman Ben Bernanke said in a speech last week that there is still a “considerable way to go” before a full economic recovery happens. Last month, Bernanke also viewed the economic prospects of the U.S. with “unusual certainty.

Most government economists believe that a modest trend of recovery is in swing, but there is also a growing concern over a possible sharp slowdown.

"The FOMC will have to tone down its assessment of the economy in view of recent weak indicators on real growth, real consumption spending and employment," said Brian Bethune and Nigel Gault, economists at Global Insight.

Poor economic data continues to pour in, with the latest jobs report saying that the private sector generated only 71,000 new jobs in July, which is not enough to curb unemployment rates. Just a week earlier, the gross domestic product dipped to 2.4 percent in the second quarter from 3.7 percent of the first quarter of the year.

Posted by James Fried on Monday August 09 2010, 11:02 AM EDT. All trademarks acknowledged. Filed under Featured News, Finance. Comments and Trackbacks closed. Follow responses: RSS 2.0