Up or down again?>..........
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Federal Reserve sees rebound in second half of 2009
Posted: 16 July 2009 0221 hrsPhotos 1 of 1 
US Federal Reserve buildingWASHINGTON: The Federal Reserve said on Wednesday the recession-bound US economy is headed toward a second-half recovery and that this would likely lead to an easing of its unprecedented stimulus efforts.
The central bank raised its outlook for 2009 and 2010, saying a rebound in the second half of 2009 that would leave the economic contraction for the year at between 1.0 and 1.5 percent.
Although it gave no detailed forecast for the second half of 2009, the rebound would have to be robust to offset the 5.5 percent pace of decline in the first quarter, on the heels of a 6.3 percent slide in the fourth quarter of 2008.
For 2010, the new Fed saw growth in a range of 2.1 to 3.3 percent, slightly better than its forecast from April. For 2011, the Fed called for growth in a range of 3.8 to 4.6 percent.
The new forecast came in projections released with minutes of the Federal Open Market Committee from June, along with comments from Fed members and a discussion of the central bank's staff forecast.
"Almost all participants viewed the near-term outlook for domestic output as having improved modestly relative to the projections they made at the time of the April FOMC meeting, reflecting both a slightly less severe contraction in the first half of 2009 and a moderately stronger, but still sluggish, recovery in the second half," the document said.
The Fed said its staff economists also raised their outlook based on recent data even though the rate of unemployment was higher than expected.
"In the forecast prepared for the June meeting, the staff revised upward its outlook for economic activity during the remainder of 2009 and for 2010," the report said.
"Consumer spending appeared to have stabilised since the start of the year, sales and starts of new homes were flattening out, and the recent declines in capital spending did not look as severe as those that had occurred around the turn of the year."
The report added: "Moreover, it seemed likely that economic activity was in the process of levelling out, and the considerable improvements in financial markets over recent months were likely to lend further support to aggregate demand."
Although the overall economic outlook was better, the Fed also raised its forecast for unemployment, saying the jobless rate would peak this year in a range of 9.8 to 10.1 percent, compared with its April forecast of 9.2 to 9.6 percent.
The Fed also addressed concerns about its ability to end an unprecedented effort to stimulate the economy by making credit available at ultra-low rates to a variety of financial institutions.
"Ensuring that policy accommodation can ultimately be withdrawn smoothly and at the appropriate time would remain a top priority of the Federal Reserve," the Fed said.
The Fed pointed out a drop in demand for some of its special programmes to get liquidity into the financial system in recent months, noting that "market conditions had improved."
But the Fed said it had decided in June to maintain these programmes and extend them into early 2010 because of a still "fragile" financial system.
"Moreover, participants viewed the availability of the liquidity facilities as a factor that had contributed to the reduction in financial strains," the Fed report said.
"If the Federal Reserve's backup liquidity facilities were terminated prematurely, such developments might put renewed pressure on some financial institutions and markets and tighten credit conditions for businesses and households."
It noted that the year-end period "was seen as posing heightened risks given the usual pressures in financial markets at that time."
As a result, the Fed extended most of the programmes into February 2010 but said that "improved market conditions and declining use of the facilities warranted scaling back, suspending, or tightening access to several programmes." - AFP/de -
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