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Federal Reserve Statement: Is No News Supposed to be Good News?

Posted by Larry Doyle on November 24, 2009 3:50 PM |

In the Uncle Sam Economy circa 2009, seemingly every meaningful economic development runs through Washington.  From housing to health care and finance to “you name it, ” the grand old man and his henchmen have their hands on almost every aspect of our lives. Getting smothered yet?

Against that backdrop, the Washington establishment dominates the news and has numbed the American public in the process. I witness this novocaine effect once again today with the release of the Federal Reserve’s Statement from its meeting on November 3-4.

While analysts pick over each and every word in this statement, do we truly learn anything new today? Assuredly not.

The Fed states:

Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

Having read and reread this statement to pick up minor nuances or subtleties in the Fed-speak, I detect little to no real news here. The fact is the economy remains horrific and the Fed will continue to flood the system with a fire hose of liquidity.

Given that there is no real news in this Fed statement, could we be so bold and say, “no news is good news”?

Now that would be a stretch, but it is one many in Washington and Wall Street don’t mind making everyday.


  • TeakWoodKite

    Today, FDIC Chair Shelia Bair released a third-quarter earnings report that showed an improvement over last quarter’s loss of $4.3 billion. The recent failure of Commerce Bank of Southwest Florida raised the total number of troubled banks to 124. The state of the financial industry has strained the FDIC, which now has a negative balance in its Deposit Insurance Fund reserves.

    As you predicted LD, but what now? No more money in the pail.

    • TeakWoodKite

      coupled with;
      The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

      Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif. The total number of mortgages nationwide is approximately 47.4 million.

      These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn’t expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

      How will this death spiral unwind? In bread lines?

  • strainer3

    the other day I came across a very interesting piece on gold and the US dollar as a result of the Federal Reserve’s continued attempts to debase our currency and continue to try to solve a debt crisis with more debt: Gold Price Breaks $1,180 as US Dollar Sinks

    here’s an excerpt: “While the Fed minutes indicate the maintenance of current dovish policy for quite some time, a positive factor for the gold price and gold mining sector, other portions of the minutes suggested that the Federal Reserve may indeed have evidence to begin to withdraw the easy monetary policies used to combat the credit crisis.”

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