Obama's "Recovery Summer" a Punch Line
Bad news follows more bad news
Fed, meeting for last time before an election, moves closer to action
By Jeannine Aversa, The Associated Press
Tuesday, September 21, 2010
Fed concluded that economic growth had slowed over the summer.
Thatís all too clear to the nearly 15 million Americans out of work, some of whom scoffed at news earlier this week that the recession had technically ended in June of last year.
Voters will go to the polls Nov. 2 for midterm elections, and polls have suggested two things:
1- Theyíre worried about the economy more than any other issue.
2- And theyíre ready to punish Democrats.
President Barack Obamaís Democrats are at risk of losing control of the House and perhaps the Senate as well. Both parties agree thereís little the president and his party can do to change votersí attitudes before the election.
Obama acknowledged the economic hardships many Americans are enduring, saying Monday:
"If youíre out of work right now, the only thing that youíre going to be hearing is, when do I get a job? If youíre about to lose your home, all youíre thinking about is, when can I get my home?"
The central bankís statement Tuesday didnít explicitly mention deflation. But it said inflation measures are "somewhat below" whatís desirable for the economy. Some economists have raised fears about a deflationary spiral ? a widespread drop in wages, prices of goods and services and the value of stocks and homes.
"They are more worried about the economy and deflation than I thought they would be," Sung Won Sohn, an economist at the Martin Smith School of Business at California State University, said of Fed officials.
If the economy keeps losing momentum, the Fed will be likelier to act when it meets again, either at its meeting Nov. 2-3 or its last regularly scheduled session of the year on Dec. 14.
If the Fed does act, chairman Ben Bernanke last month indicated a preference to buy large amounts of government debt ? a move to lower rates on mortgages, corporate loans and other debt and get people and businesses to spend more money.
Unconventional steps like that, known in economic circles as "quantitative easing," have helped the Fedís balance sheet balloon to $2.3 trillion, nearly triple its level before the financial crisis.
Even if the Fed made such a move, economists donít think it would help much. Already low interest rates havenít managed to get Americans to spend much more. Companies and people alike have remained cautious as they rebuild their finances and pare debt.
Economic growth slowed in the second quarter, advancing at a pace of just 1.6 per cent, compared with 3.7 per cent growth in the first three months of the year. Growth in the third quarter is expected to be similarly weak. That raises the likelihood that the unemployment rate, already high at 9.6 per cent, could climb even higher in the months ahead. http://www.chroniclejournal.com/stories_busin...