Federal Reserve's optimistic policy statement conceals worries

16:09, March 17, 2011      

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The Federal Reserve offered its most optimistic view of the US economy since the recession ended, even as Japan's tsunami and nuclear crisis stoked worries around the globe. The Fed made the declaration in its policy statement released at the conclusion of its meeting Tuesday, March 15.

"The economic recovery is on a firm footing, and overall conditions in the labor market appear to be improving gradually,” the Fed spokesman said at routine policy meeting Tuesday. What the Fed sees is improving labor market and inflation that appear to have hit a floor. This optimistic statement has given a "cardiac stimulant" to the stock market that had dropped drastically right after opening the trading early Tuesday.

While transmitting or delivering the optimistic information, the Fed nevertheless has not given up the loose quantification monetary policy in support of the US economy. It will not alter its plan to buy 600 billion US dollars in bonds adopted in November 2010, in an effort to boost economic recovery, noted the Fed statement. Meanwhile, the statement said "the benchmark Fed fund rate continues to hover at all-time lows and that its second round of quantitative easing will proceed as scheduled."

Public opinions, however, indicate that Fed has demonstrated its consistent attitude to the prospects of the U.S. Economy, and it cannot determine whether American economy can continue to maintain the growth if without the firm support of the Federal government.

The employment market situation still poses the biggest hidden worries for US economy, which has accumulated kinetic energy since the end of 2010. The consumption tax and income tax of enterprises have replaced the government expenditure to the major driving force to aid or support the economic growth. And in addition to the tax cut and other economic simulative policies introduced at the end of 2010, economic experts favor the view that U.S. economy will pick up in 2011 on the whole.

However, the non-recovery of employment conditions since the mid 2009 has puzzled US economic policy makers. The unemployment rate has been falling for three months, down from 9.8 percent in November 2010 to 8.9 percent in February this year, marking the sharpest three-month decline since 1983. While recognizing this improvement, Fed insists that the unemployment rate remains high, and the speed for economic resurgence is still insufficient to cut the jobless rate rapidly.

Analysts hold that the prospects of the U.S. employment market also have big uncertainties. For months, the layoff in the US public sectors has been offset by an increased employment in private sectors and, if strained financial situation in various US states is not eased, the unemployment rate could possibly bounce back. The consumption expense accounts for 70 percent of the total US economic output and the high unemployment rate will inevitably restrict the sustainable growth of the consumption expenses. "Very loose monetary could be followed by policy makers to solve the unemployment problem and propel economy back to prosperity," said Fed Chairman Ben Shalom Bernanke.

The US real estate industry has never joined the recovery in a cross-current. The Fed statement underscored that the US housing market was still murky, and the commercial property market that reflects the enterprise booming degrees was particularly frail.

The Fed's monetary policy has caused inflation concern both inside and outside the United States, especially with the promulgation of the second-round loose quantification policy, as the inflation level in the U.S. been set at the level lower than the 2 percent mark, and the Fed is concerned with a possible deflation. But this is inconsistent with the sentiments of ordinary residents on bloating cognition, and American society has apparently increased its worries than ever before.

The Fed shifted its view on inflation modestly in the policy statement. "It has the capacity to help deal with not just the future humanitarian challenges... There is too much uncertainty with the growth and inflation outlook for their views to change," Said William O'Donnel, head US government bond strategist.

The Fed policy statement did not mention the impact the "March 11th earthquake" in Japan could possibly inflict upon the U.S. economy and the situation in the Middle East was depicted only in few words. So analysts hold that the Fed is still in the phase of collecting and analyzing data.

By People's Daily Online and contributed by PD resident reporter in U.S. Ma Xiaoning
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