They Should Know

The Lehmann Letter ©

Today the Federal Reserve decided to maintain the federal-funds rate (the interest rate at which banks lend to each other) at near zero. The Federal Open Market Committee, which sets this rate for the Fed, made these comments on the economy (http://www.federalreserve.gov/newsevents/press/monetary/20090128a.htm ):

“Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.”

We all know that conditions are terrible. But that last sentence catches the eye. Maybe the situation will begin to improve at year’s end, but maybe it won’t. It’s too soon to tell.

That’s scary. And the Fed should know.

© 2009 Michael B. Lehmann