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News : International Last Updated: Jul 16, 2010 - 9:24:43 AM


US Economy: Federal Reserve cuts growth forecast; White House says 2009 $787bn stimulus program has saved or created 2.5 to 3.6m jobs
By Michael Hennigan, Founder and Editor of Finfacts
Jul 15, 2010 - 5:55:58 AM

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President Barack Obama meets with businessman Warren Buffett, in the Oval Office, July 14, 2010.

The Federal Reserve on Wednesday revealed its staff had cut its growth forecast while some highlighted the risk of deflation.  Also in Washington, the White House claimed that its 2009 $787bn stimulus program has saved or created 2.5 to 3.6m jobs since it was enacted.

In a signal of the fragility of the recovery, economic data published Wednesday, showed that US retails sales fell in June for the second straight month.

The Fed published the minutes of its June meeting of the rate setting Federal Open Market Committee (FOMC) which show that the staff continued to anticipate a moderate recovery in economic activity through 2011, supported by accommodative monetary policy, an attenuation of financial stress, and strengthening consumer and business confidence. It said that while the recent data on production and spending were broadly in line with the staff’s expectations, the pace of the expansion over the next year and a half was expected to be somewhat slower than previously predicted.

Growth will slow to 3.0 to 3.5% percent this year, down from the 3.2 to 3.7% predicted just months ago.

The minutes say that "changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place. However, members noted that in addition to continuing to develop and test instruments to exit from the period of unusually accommodative monetary policy, the Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably.

Given the slightly softer cast of recent data and the shift to less accommodative financial conditions, members agreed that some changes to the statement’s characterization of the economic and financial situation were necessary. Nearly all members judged that it was appropriate to reiterate the expectation that economic conditions - -  including low levels of resource utilization, subdued inflation trends, and stable inflation expectations - - were likely to warrant exceptionally low levels of the federal funds rate for an extended period."

“A few participants cited some risk of deflation,” the minutes noted. “Other participants, however, thought that inflation was unlikely to fall appreciably further, given the stability of inflation expectations in recent years and very accommodative monetary policy.”

The Fed also raised its end-of-year unemployment forecast from 9.2 to 9.5% predicting that the labour market would recover more slowly than expected.

Unemployment is not expected to fall below 7% before 2013, leaving millions of Americans out of work.

Ideas on how to solve the jobs and economic recovery problem, with Mort Zuckerman, U.S. News & World Report and Steven Pearlstein, Washington Post:

This week a Washington Post-ABC News poll showed only 43% of those surveyed said they approved of Obama's handling of the economy.

The White House is seeking additional stimulus measures while much of the public is concerned about the high debt levels inherited from President Bush who saw a doubling of the national debt in 2001-2008.

 

The White House released a report estimating that its economic stimulus program had saved or created 2.5 to 3.6 jobs since it was enacted in early 2009, over implacable Republican opposition.

The estimates in the report are consistent with those of the nonpartisan Congressional Budget Office. However, Senate Republicans are continuing to block legislation to extend unemployment benefits while a poll by Democracy Corps, a polling group run by Bill Clinton's 1992 campaign manager and his partner Stan Greenberg, found that 1,000 voters who were asked in mid-June how well the term "socialist" fits President Obama, 55% said "well" or "very well."

“I know what they’re against, but I don’t know what they’re for,” Vice President Joe Biden said of the Republicans as he unveiled the report (pdf). “I mean that literally.”

The Obama administration’s stimulus push has saved or created about three million jobs and is on track to save an additional 500,000 by the end of the year, according to a new report by President Obama’s Council of Economic Advisers.

The report shows that for every dollar spent under the Recovery Act for renewable energy and other projects the private sector is spending $3.

The Recovery Act appears to be stimulating private investment and job creation at a time when the economy needs it most,” Christina Romer, who chairs the Council of Economic Advisers, told a Congressional committee Wednesday.

Romer said the best use of Recovery Act money is in the areas of clean energy, economic development, and building construction.

More than 8m jobs have been lost since late 2007.

About half of the FOMC now sees risks tilted to the downside, reports CNBC's Steve Liesman. Zane Brown, of Lord Abbett, and James Bianco, of Bianco Research, share their views:

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