Fed Still Cautious About Recovery Predictions

The Federal Reserve is keeping its optimism regarding the future of the American economy under a tight rein for now. At a meeting earlier in the week, debate appears to have taken place on what the Fed policy should be in the near future to improve the current pace of growth, without upsetting the delicate balance which many sectors of the economy have just managed to achieve.

The message is clear – the Fed is not prepared yet to declare the economy as officially ‘recovered’ from the recession.

Policy makers have made it clear that any action taken by the Federal Reserve will depend upon its own informed view of how the economy is moving. This will include any revision in interest rates as well. It is clear that economists and policy makers are still wary of the adverse effects that any drastic rate hikes may have on the modest gains.

The improvement is apparent in many segments of the economy. There is clear evidence that consumer spending has increased and that confidence is better now than it ever was in the last 3 years. Industrial activity is picking up pace following increased consumer demand. Apple’s recent successful iPad launch testifies to the fact that consumers are once again willing to reach for their wallets if they find a worthwhile product on the shelves.

These gains are however set off by the fact that the housing market, which is one of the prime indicators of a sound economy, is yet to show any significant improvement. Although President Obama has brought in many incentives such as the Making Homes Affordable scheme and First Time Home Buyer Credit, the demand in the market is still quite sluggish.

The First Time Home Buyer Credit started off with a bang last year but its effectiveness was much lower than expected during its second run. While analysts and economists have suggested several reasons for this poor showing, it does nothing to boost the morale of home buyers.

Unemployment levels continue to remain high, preventing top government officials from declaring that the worst is behind us. A positive job creation number in March, which came after almost a 3 year gap, was the first glimpse of economic recovery leading to employment. However, the Fed monetary policy will hinge on consistent and stable improvement in the job market for at least the next few months.

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