Wednesday 19th of December 2018

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Fed Reports End of Recession Near As Inflation Rate Stays Low

The U.S. Federal Reserve signaled a collective sigh of relief this week as it indicated the nation’s economic downtown has at last found its bottom and the recession is nearly finished.

At the end of its two-day meeting, the Fed issued a statement that the nation’s “economic activity is leveling out.” The good news continued with the additional word that inflation is expected to be “subdued for some time.” And the policy-making body will maintain short-term interest rates - considered the benchmark - at near zero for some time.

Some analysts expect the Government not to increase the federal funds rate until late 2010. That is the overnight rate at which banks lend their reserves to one another.

The Fed announcements were reflections of the collective good news that has been evident in recent reports of stability in the financial markets, overall spending by shoppers and companies building up their inventories.

Still, there were some sobering forecasts issued by the Fed. Although the recession is winding down, the recovery is expected to proceed at a slow pace. Also, unemployment rates are expected to stay high through the end of 2010. Some estimates say the national rate will stop just short of 10 percent before it goes back down.

It’s been nearly two years since the Fed began its quest to rescue an economy that had suffered its worst period in U.S. history. One method it used was to buy $300 billion worth of Treasury bonds. The purpose was to force a decrease in long-term interest rates, which was expected to lead to lowering the costs associated with corporate borrowing and home mortgages. The goal seems to have been achieved since the Fed noted this week it should be finished with its purchase plan by October.

Another piece of its rescue program also continues. The Fed has reached the midpoint of a separate plan to purchase $1.25 trillion in securities backed by mortgages.

This measure actually has impacted mortgage rates directly along with having a stronger effect than the Treasury bond program. Those bond purchases have equaled only about a third of the new Treasury securities issues. In comparison, the Fed’s buying the government-backed mortgage securities equaled more than 100 percent of new issues reported in that market.

The United States isn’t the only nation with good economic news this week. France and Germany reported having economic growth in the second quarter of this year, signaling the end of their recessions. This was much sooner than economists has predicted.