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.”
MORE VISITORS: The Tourism Administration said that it is seeing positive prospects in its efforts to expand the tourism market in North America and Europe Taiwan has been ranked as the cheapest place in the world to travel to this year, based on a list recommended by NerdWallet. The San Francisco-based personal finance company said that Taiwan topped the list of 16 nations it chose for budget travelers because US tourists do not need visas and travelers can easily have a good meal for less than US$10. A bus ride in Taipei costs just under US$0.50, while subway rides start at US$0.60, the firm said, adding that public transportation in Taiwan is easy to navigate. The firm also called Taiwan a “food lover’s paradise,” citing inexpensive breakfast stalls
TRADE: A mandatory declaration of origin for manufactured goods bound for the US is to take effect on May 7 to block China from exploiting Taiwan’s trade channels All products manufactured in Taiwan and exported to the US must include a signed declaration of origin starting on May 7, the Bureau of Foreign Trade announced yesterday. US President Donald Trump on April 2 imposed a 32 percent tariff on imports from Taiwan, but one week later announced a 90-day pause on its implementation. However, a universal 10 percent tariff was immediately applied to most imports from around the world. On April 12, the Trump administration further exempted computers, smartphones and semiconductors from the new tariffs. In response, President William Lai’s (賴清德) administration has introduced a series of countermeasures to support affected
CROSS-STRAIT: The vast majority of Taiwanese support maintaining the ‘status quo,’ while concern is rising about Beijing’s influence operations More than eight out of 10 Taiwanese reject Beijing’s “one country, two systems” framework for cross-strait relations, according to a survey released by the Mainland Affairs Council (MAC) on Thursday. The MAC’s latest quarterly survey found that 84.4 percent of respondents opposed Beijing’s “one country, two systems” formula for handling cross-strait relations — a figure consistent with past polling. Over the past three years, opposition to the framework has remained high, ranging from a low of 83.6 percent in April 2023 to a peak of 89.6 percent in April last year. In the most recent poll, 82.5 percent also rejected China’s
PLUGGING HOLES: The amendments would bring the legislation in line with systems found in other countries such as Japan and the US, Legislator Chen Kuan-ting said Democratic Progressive Party (DPP) Legislator Chen Kuan-ting (陳冠廷) has proposed amending national security legislation amid a spate of espionage cases. Potential gaps in security vetting procedures for personnel with access to sensitive information prompted him to propose the amendments, which would introduce changes to Article 14 of the Classified National Security Information Protection Act (國家機密保護法), Chen said yesterday. The proposal, which aims to enhance interagency vetting procedures and reduce the risk of classified information leaks, would establish a comprehensive security clearance system in Taiwan, he said. The amendment would require character and loyalty checks for civil servants and intelligence personnel prior to
RSS