Fed sees tentative signs of economic improvement

By AFP

July 15, 2010 Updated May 20, 2009 at 3:01 PM CDT

Federal Reserve policymakers are seeing "tentative evidence" the US economy is coming out of recession and could show modest growth in the second half of 2009, minutes released Wednesday showed.

The central bank revised its economic outlook Wednesday to show a drop in US output to a range of between 1.3 and 2.0 percent over 2009, but said some of the worst declines may be over.

While that was weaker than the range of a 0.5 to 1.3 percent decline in the last official forecast in February, the minutes said the Fed staff had "revised up" its more recent outlook "in response to recent favorable financial developments as well as better-than-expected readings on final sales."

The minutes from the April 28-29 Federal Open Market Committee meeting showed a slightly more optimistic tone from central bank policymakers although they noted a range of ongoing economic and financial market woes.

"Participants agreed that the information received since the March meeting provided some tentative evidence that the pace of contraction in real economic activity was starting to diminish," the minutes showed.

"Participants noted that financial market conditions had generally strengthened, and surveys and anecdotal reports pointed to a pickup in household and business confidence, which nonetheless remained at very low levels."

The Fed staff forecast prepared for the meeting showed a growing number of signs that the recession that began in December 2007 was easing.

"Consumer purchases appeared to have stabilized after falling in the second half of 2008, and the steep decline in the housing sector seemed to be abating," the Fed minutes said of the staff forecast.

"However, the contraction in the labor market persisted into March, industrial production again fell rapidly, and the broad-based decline in equipment and software investment continued."

At the same time, the Fed said, improvements in financial and credit markets were encouraging.

"Private borrowing rates moved lower, stock prices rose substantially, and some measures of financial stress eased," the Fed said.

"The staff's projections for economic activity in the second half of 2009 and in 2010 were revised up, with real GDP (gross domestic product) expected to edge higher in the second half and then increase moderately next year."

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