Federal Reserve Chairman Ben S. Bernanke pulled out all the stops to avert a depression last year. Now he and his colleagues must decide how to respond to the risk of a growth recession in 2011.1) Yes, we avoided an all out depression, but I think 2008 was just the front end of deflation stopping at the cliff's edge for now.
The possibility of a sub-par expansion poses a dilemma for the central bank’s policy-making Federal Open Market Committee when it meets tomorrow. While the economy isn’t so weak that it’s clearly in need of more monetary stimulus, it may not be strong enough to keep unemployment from increasing.
Twenty seven of 58 economists polled by Bloomberg News this month see growth in 2011 below the 2.5 percent to 2.8 percent pace Fed policy makers peg as the long-term trend. Twenty eight see the jobless rate rising above last month’s 9.6 percent sometime in the next nine months. That combination would constitute a growth recession.
The Fed’s difficulties are compounded by the fact that it has already cut the overnight interbank interest rate to near zero and FOMC members are divided about the costs and benefits of further easing through unconventional policies such as buying more bonds and increasing its $2.3 trillion balance sheet.
While policy makers aren’t likely to adopt any new initiatives at their meeting tomorrow, they probably will announce a major asset-buying program in January, said Ethan Harris, head of developed-markets economic research at BofA Merrill Lynch Global Research in New York.
That would push the yield on 10-year Treasury notes below 2 percent in the first quarter of 2011, he said. It stood at 2.74 percent at 4:41 p.m. on Sept. 17 in New York, according to BGCantor Market Data.
Lower yields would make investments in shares of companies that pay dividends more attractive, said Jerry Webman, chief economist and senior investment officer at OppenheimerFunds in New York, which manages more than $155 billion.
2) Sub-par expansion! You bet because people realize they don't need or can't afford real estate and/or peak level consumer spending. Dah..............................No Dah!
3) I'll take the under on 2.5% growth. Too many head winds coming our way. Continued foreclosures, commercial real estate, more banks being closed, persistence unemployment, rectifying the municipal budget night mare. And, when not if do we get higher taxes.
4) If they haven't run out of bullets, they're very close. There's not much more they can do, while making the day we pay for it a bigger nightmare. I guess no one wants to pay for it on their watch.
5) Buying treasuries to push rates lower and encouraging the buying of stocks is nothing more than a similar gimmick that created the tech. and real estate bubble. When it's over it should be devastating for assets.
It's quite simple, if nothing changes significantly in the Main Street economy, don't expect any real improvement for the majority.
Dear Ben: My clients are all small businesses owners, and I see no growth in their business. So where is the growth going to come from? Not including government stimulus.
Hope all is well.
J.D. Rosendahl, Rosey