The central bank of the United States, known as the Federal Reserve, declared that economic activity is leveling out. In other words, the steep fall in production and employment, experienced by the economy since the recession started in December 2007, has been stopped.
The last statement issued last week, at the conclusion of the Federal Open Market Committee meeting, recognizes signs of improvement in financial markets and signs of stability in household spending. However, this last remains constrained by job losses, tight credit, slow income growth and lower housing values. Additionally, businesses are still reluctant to hire and invest, while they are aligning inventories to potential sales.
In all, despite these positive signs, the Federal Reserve anticipates that economic activity will remain weak and that inflation will remain subdued, for some time.
For these reasons, the federal funds interest rate will remain unchanged, at close to zero, for an extended period, while purchases of asset backed securities will continue, to support mortgage lending and private credit markets. The only change announced is the gradual completion of the purchase of US $300 billion in Treasury securities, by the end of October.
Therefore, the Federal Reserve decided to stay the expansionary course, despite the signs that economic activity has leveled out. Even the editorial page of the Wall Street Journal agreed that "it's hardly time to put the brakes on."
Isaac Cohen is the former director of the Washington Office of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). He is a commentator on economic and financial issues for CNN en Espanol TV and radio.
