The best the Federal Open Market Committee could say last week after its meeting was that the stats flowing in since April “suggests that the pace of economic contraction is slowing” in the U.S. So the Fed rates will remain in the zero-to-0.25 range “for an extended period.” The Fed has extended through February 1, 2010 various liquidity-boosting programs, including the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The green shoots need some Fed irrigation, presumably. The Term Auction Facility still doesn’t have an expiration date, but the size of the auctions has been trimmed; so have the auctions under the TSLF. And the Term asset-Backed Securities Loan Facility is still set to expire at the end of this year.
Meanwhile, the European Central Bank opened its pipeline in a big way on June 24; Europe’s banks inhaled $662 billion of one-year funds at the ECB’s one percent lending rate, ignoring German Chancellor Merkel’s recent criticism of central bank largess. “Surprisingly little attention has been paid to the state of European financial institutions,” says David Levy, director and chairman of the Jerome Levy Forecasting Center. “There are estimates that only 20 percent of European banking problems have come to light. The Spanish housing market bubble is bursting, and the economic problems in Eastern Europe will blow up eventually,” Levy predicts, praising the ECB move.
U.S. economic data continues to paint a murky picture. The White House and Wall Street economists seem delighted with the news that consumers are saving at the highest rate in 16 years, which means that they’re not spending that money on cars and other goods. People are repairing their balance sheets, too. All of this is laudable but does not portend a strong recovery. Meanwhile, the weekly jobless numbers turned up again, and welfare claims are jumping sharply for the first time since the Clinton reforms of 1996.