Fed Officials on the Economy: Not Time to ‘Pop the Champagne Corks’ Yet

There are plenty of signs of life returning to the U.S. economy, including recent and upcoming moves by the Federal Reserve, but its members are being careful not to be overly optimistic.

Last week after the Fed raised its emergency lending rate, Atlanta Fed president Dennis Lockhart made it clear that he “would not interpret this action as a tightening of monetary policy or even a sign that a tightening is imminent. Rather, this action should be viewed as a normalization step.”

Last Friday New York Fed president William Dudley said although the economy grew by 5.7 percent in the last quarter of 2009, “it’s far too early to pop the champagne corks,” citing unemployment as remaining “unacceptably high.”

San Francisco president Janet Yellen reiterated that point yesterday by saying that she believes that unemployment rates will probably stay “painfully high for years.”

She said that even though the Fed is about to wrap up its purchases of $1.25 trillion worth of mortgage-backed securities, the mortgage market is not yet completely healed, signaling that the Fed has no plans to raise its federal funds rate any time soon.

“We are already unwinding the emergency programs we set up during the financial crisis, and when the day comes to start raising rates again, we have tools at the ready. But, for the time being, the economy still needs the support of extraordinarily low rates,” she said.

Yellen also said that the Fed will not sell off its mortgage securities quickly, but will probably wait until the mortgage market stabilizes. That’s good news for those looking to buy a house or refinance their home loan in the near future!




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One Response to “Fed Officials on the Economy: Not Time to ‘Pop the Champagne Corks’ Yet”

  1. betsy responded on 25 Feb 2010 at 11:49 am #

    A great article on the Fed and their different “opinions”. It will be interesting to hear the take on today’s hearings with Bernanke and Geithner and how their comments effect the markets.

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