As expected the US Federal Reserve left interest rates steady after its meeting and again emphasised that rates would remain low for some time.
It didn’t make any comment on pumping more money into the financial system to bolster lending and indicated that it continued to believe in the green shoots it was seeing in the economy, such as housing, durable goods and a slowing in the growth of jobless numbers.
Ending its two-day meeting, the Open Market Committee said in the statement the US economy remained weak but was showing signs of improvement.
"Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing," it said.
"The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
"Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability."
So no inflation fears (so much for all those jumping at shadows about future inflation) and no real surge in demand in the economy: In short it will be a weak, half-hearted rebound.
But no sign of an exit strategy from its stimulus from the Fed: the reason? Because its way too early and the Fed, while believing in green shoots, remains doubtful about what they will turn into to over the next months.
We saw another green shoot overnight with a second month of solid orders for durable goods: up 1.8% in May after a similar rise in April. But sales of new homes were lower than forecast.
Many commentators saw the silver lining in the latest Outlook for the world economy from the Organisation for Economic Co-operation and Development which revised its World Economic Outlook upwards for the first time in two years, as its latest review concludes that the global economic slide is nearing a bottom.
In its report, published on overnight, the OECD changed its growth forecast for 2009 for the 30 nation OECD area to a decline of 4.1%, down from a contraction of 4.3% forecast in March.
It said that in 2010, it expects very modest growth where earlier it expected none.
That saw European markets lift by 2% to 3%, going the other way to the sharp fall on Monday.
Wall Street rose, but then weakened when the Fed left rates steady and didn’t add to its existing statements on inflation.
“OECD activity now looks to be approaching its nadir, following the deepest decline in post-war history,” the OECD said.
But the reality was expressed in the qualifying statement: "But recovery is likely to be weak and fragile, and the economic and social damage caused by the crisis will be long-lasting."
“Yet, it could have been worse. Thanks to a strong economic policy effort an even darker scenario seems to have been avoided,” the OECD added.
The Organisation said that financial conditions are likely to remain constrained for some time and the actual bottom of the recession is will probably not be reached until the second half of this year.
Moreover, unemployment within the OECD will not peak until next year (see accompanying story) and that looks to be the major constraint in all OECD economies for sometime to come.
But the risks to growth have become more balanced, thanks to massive policy intervention on the fiscal and monetary fronts and quick efforts to stabilise financial institutions.
(All that criticised stimulus spending in the US, China, Japan, Australia, the UK and throughout Europe).
The OECD said that growth appears to be under way in most non-OECD countries, especially China and there are signs that the contraction in the US may be near the bottom as well as signals that Japan may be coming to the end of its trade-induced contraction.
The report cautions governments against sudden withdrawal of fiscal stimulus, a likely response given the build-up of apparently unsustainable levels of public borrowing.
“However, it is necessary to balance concerns about fiscal sustainability with the need to avoid an overly rapid phase-out of fiscal support,” the report said.
Meanwhile, the fall in world trade seems to have moderated after the collapse in the fourth quarter of 2008 and first quarter of 2009.
Nonetheless, OECD exports and imports have most likely been falling at double-digit rates in the second quarter, the decline being less pronounced for the non-OECD area.
"A recovery already appears to be taking hold in China, helped by major stimulus measures.
"Chinese GDP growth is forecast to be 7.7% in 2009 (7.2% for the World Bank) and 9.3% in 2010, an upward revision from the OECD’s March forecasts of 6.3% this year and 8.5% next year.
In Brazil, economic activity is forecast to fall by 0.8% in 2009 and rebound to 4.0% growth in 2010 (March forecast -0.3% and +3.8%); in Russia, economic activity is forecast to drop b
