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Fed says economy leveling, new indicators released
Published in Saudi Press Agency on 13 - 08 - 2009


The Federal Reserve said the U.S.
economy may be «leveling out» as it held interest rates
at record lows, while the weekly jobless claims to be
released Thursday may give another sign of whether the
recession is nearing an end, AP reported.
Meanwhile, retail sales are likely to show an improvement
in consumer spending, helped by the Cash for Clunkers auto
sales program. Economists, however, do not believe consumer
spending will look as strong excluding auto sales.
The Fed delivered a vote of confidence in the economy
Wednesday, saying it would slow the pace of an emergency
rescue program to buy $300 billion worth of Treasury
securities and shut it down at the end of October, a month
later than previously scheduled.
It also held interest rates steady, with a closely watched
bank lending rate near zero, and again pledged to keep them
there for «an extended period» to nurture an anticipated
recovery.
Fed Chairman Ben Bernanke and his colleagues said the
economy appeared to be «leveling out» _ a considerable
upgrade from their last meeting in June, when the Fed
observed only that the economy's contraction was slowing.
«We're no longer at DEFCON 1,» said Richard Yamarone,
economist at Argus Research, referring to the defense term
used to indicate being under siege. «The Fed is pulling in
some of its life preservers now that the economy is no
longer sinking.»
The more optimistic tone lifted Wall Street on Wednesday.
The Dow Jones industrials gained about 120 points, or 1.3
percent, to close above 9,360 _ near their highest level
since the market bottomed out in early March. Ahead of the
opening bell Thursday morning, Dow Jones industrial average
futures rose 96, or 1 percent, to 9,415.
The Treasury-buying program has bought $253 billion of the
securities so far. The program is designed to force
interest rates down for mortgages and other consumer debt
and spur Americans to spend more money.
The program's effectiveness has been questioned on both
Wall Street and Capitol Hill, with critics saying it looks
like the Fed is printing money to pay for the U.S.
government's spending binge.
As the Fed winds down the program, rates on government
debt might edge higher, economists said. But the Fed
appeared to feel sufficiently secure that higher rates
would not jeopardize a recovery, they said.
Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi,
viewed it as a «vote of confidence that credit markets and
the economic outlook has improved and will show even
further improvement down the road.»
The Fed left the target range for its bank lending rate at
zero to 0.25 percent. And economists think it will stay
there through the rest of this year. The rationale:
Super-cheap lending will lead Americans to spend more,
which will support the economy.
Reports last week from the major U.S. chain stores
indicated that shoppers remained tightfisted in July as
households struggle with continued job layoffs and the
nation's longest recession since World War II.
Retail sales are considered a strong indicator of economic
recovery because consumer spending accounts for more than
two-thirds of all economic activity. It is widely believed
spending needs to improve to help end the ongoing
recession.
A big concern now is whether worried consumers will cut
back on their back-to-school purchases in coming weeks and
their holiday shopping later this year.
Economists surveyed by Thomson Reuters expect retail sales
rose 0.7 percent last month after a 0.6 percent increase in
June. However, the consensus view is that retail sales,
excluding autos, will show a modest 0.1 percent increase,
weaker than the 0.3 percent gain in June.
The Cash for Clunkers program, which gives people trading
in certain types of vehicles up to $4,500 if they increase
their mileage by at least 5-10 mpg (2.12-4.25 kpl), has
proven popular, helping to boost unit sales of light
vehicles in July to the highest level since last September.
Further job losses, sluggish income growth, hits to wealth
from falling home values and still-hard-to-get credit could
make Americans cautious in the months ahead, the Fed said.
While unemployment dipped to 9.4 percent in July, the Fed
says it's likely to top 10 percent this year because
companies are in no rush to hire.
Wall Street economists expect the number of newly laid-off
workers filing applications for unemployment benefits fell
slightly last week as companies cut fewer jobs.
A Labor Department report is projected to show new
unemployment insurance claims fell to a seasonally adjusted
545,000 from 550,000, according to economists surveyed by
Thomson Reuters.
Both the unemployment and retail sales reports are due out
Thursday at 8:30 a.m. EDT (1230 GMT).


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