The US Federal Reserve sent out signals on Wednesday that the US economy will have to muddle through its crisis without further rate cuts, even as the central bank slashed its forecast for growth this year.
In minutes released from its April 29 to April 30 policy meeting, the Fed said its decision to cut rates by a quarter point was “a close call” and that the “substantial easing” since last September, plus other measures, would help underpin economic activity.
At that meeting, the Federal Open Market Committee (FOMC), led by chairman Ben Bernanke, voted 8-2 to cut the federal funds base lending rate by a quarter point to 2 percent, the latest in a series of rate cuts since September aimed at firing up lagging growth.
But the panel stated that “it was no longer appropriate for the statement to emphasize the downside risks to growth,” the minutes said.
The minutes also said that “several members noted that it was unlikely to be appropriate to ease policy ... unless economic and financial developments indicated a significant weakening of the economic outlook.”
“The prevailing message of the minutes for the stock market is that we have very likely seen the end of this rate-cutting cycle,” said Patrick O’Hare at Briefing.com. “You can never say never, but that thinking helps explain why there was a sharp move lower [in the stock market] immediately following their release.”
Wall Street’s main indexes tumbled more than 1.6 percent. Losses accelerated after the Fed release, which came along with an updated economic outlook in which the central bank also made a sharp downward revision for growth to a range of 0.3 percent to 1.2 percent, from its prior forecast of 1.3 percent to 2 percent.
The new outlook, part of the Fed’s new policy for more frequent updates, was roughly in line with many private economist forecasts for sluggish growth which would put the world’s biggest economy on the brink of recession.
The US economy expanded at a tepid 0.6 percent pace in the past two quarters, with some analysts expecting a recession from the horrific slump in housing and the related credit squeeze.
“Participants viewed activity as likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of the year,” the Fed statement said.
Fed governor Kevin Warsh made the point more emphatically in a Washington speech as the minutes were released.
“The Federal Reserve has employed the hammer with considerable force in the last nine months, lowering the federal funds rate by 3.25 percentage points, with wide-ranging implications for the economy,” Warsh said. “But now, policymakers may be well-served encouraging a new financial architecture to emerge, aided, in part, by the actions we have taken. Even if the economy were to weaken somewhat further, we should be inclined to resist expected, reflexive calls to trot out the hammer again.”
Brian Bethune, economist at Global Insight, said he believes the Fed has not closed the door to rate cuts, but will not act soon.
“While this suggests that the Fed is on hold for several months, the key issue that will emerge by September is the outlook for growth [in] 2009,” Bethun said.
“From our vantage point it looks very likely like the FOMC will have to lower its [economic] forecast band for 2009 when these forecasts are updated for the September and December meetings of the FOMC,” he said. “In view of these late-2008 expected downward revisions to the Fed’s central tendency forecast for 2009, Global Insight believes that there is a strong likelihood that the Fed will move to lower rates by about 50 basis points in the final months of 2008.”
‘NO SECURITY RISK’: The Railway Bureau reassured the public that the technicians’ activities were limited to technical guidance and did not involve sensitive systems The Railway Bureau yesterday said it had invited eight Chinese technicians to assist with an airport MRT construction project. The bureau issued the confirmation after an Internet user said Chinese nationals had entered the construction zone of Taiwan Taoyuan International Airport’s Terminal 3 project. They asked why “individuals from an enemy state” were allowed access to such a major national infrastructure project, which raised serious concerns over Taiwan’s industrial safety, sensitive systems and information security. The bureau’s Northern Region Engineering Branch Office said subcontractor Taiwan Handle Industrial Co (台灣手把工業) of the Taoyuan airport MRT’s “Contract No. CU05 Project A14 Station Civil, MEP &
The National Chungshan Institute of Science and Technology yesterday showcased its locally developed variants of the Vision 60 robotic patrol dog, which it plans to deploy on the nation’s outlying territories in the South China Sea. The variants were produced under the Joint Lab project — created by the institute and domestic companies — and assembled with domestically produced motors, lenses and artificial intelligence (AI) systems alongside licensed tech from the US, Missile and Rocket Systems Research Division deputy director Jen Kuo-kang (任國光) told the media event at a military base in Taipei’s Dazhi (大直) area. Taiwan has built up its strengths
TIT-FOR-TAT: The US allegedly revoked the visa of a Chinese national working at Xinhua News Agency in the US in response to Beijing’s expulsion of Vivian Wang The Presidential Office yesterday condemned China for expelling a New York Times correspondent from Beijing following the newspaper’s interview with President William Lai (賴清德), saying the move highlighted Beijing’s suppression of press freedom and its threat to international news media. Taiwan has noted a series of recent incidents in which Beijing used similar tactics to “threaten and pressure international media outlets and journalists,” Presidential Office spokeswoman Karen Kuo (郭雅慧) said in a statement. “This concerns not only press freedom and freedom of expression, but also the safety of journalists, and Taiwan and relevant partners are paying close attention to the situation,” she
NOT IMMEDIATE: Taiwan has a chance to appeal the proposed 10 percent tariff before it starts, while other countries face a 12.5 percent tariff from the trade office Taiwan is among 60 economies determined by the US to have failed to impose or enforce a ban on the importation of goods produced with forced labor, according to a notice released on Tuesday by the Office of the US Trade Representative (USTR), which proposed imposing an additional 10 percent or more tariff on them. The USTR in a statement said that following an investigation, it had determined under Section 301 of the Trade Act of 1974 that the failure of the 60 economies to impose and effectively enforce a prohibition on the importation of goods produced with forced labor is
RSS