The Federal Reserve’s FOMC meeting yesterday was a bit of a yawn, although the boys at the bank did tell us that “economic activity is leveling out.” But they also recognized that the leveling isn’t likely to lead to growth any time soon and so the central bank announced that it would keep the target rate for Fed funds at an extraordinarily low 0-0.25% range, as widely expected.
Nonetheless, it’s clear that Bernanke and company have turned optimistic, if only marginally and relative to the deep pessimism of the recent past. That’s no surprise considering that the supporting clues have been bubbling for some time. We’ve been arguing for months that the recession was near a technical end, in part due to the encouraging signs from the declining trend in initial jobless claims. This data series tends to peak at or just ahead of business cycle troughs, as we discussed in some detail back in March, which so far remains the high point for new jobless claims. Much of the credit can go to the Fed, which has been aggressively pumping liquidity into the system to slow and ultimately halt the downturn. The jury’s still out on how the central bank plays its cards from here on out–i.e., the so-called exit strategy. But for the moment, there’s reason for mild optimisim.