Business | Economy
Slowdown may push US to the brink of deflation
Federal Reserve officials warned of a prolonged global econ-omic slowdown that may push the US to the brink of deflation.
- Bloomberg
- Published: 22:59 January 29, 2009
New York: Federal Reserve officials warned of a prolonged global econ-omic slowdown that may push the US to the brink of deflation.
For the first time during the credit crisis, the Federal Open Market Committee's statement yesterday indicated concern about the worldwide economy weakening "significantly," with "some risk" that inflation would remain below ideal rates. The Fed signalled it's moving closer to buying long-term Treasuries and expanding its $600 billion (Dh2.2 trillion) programme to buy home-finance debt.
Chairman Ben S. Bernanke and his colleagues are focused on reducing a range of long-term borrowing costs to stem the longest recession since 1982. Policy makers, concluding a two-day meeting yesterday, left their target range for the main interest rate unchanged at close to zero and reiterated rates will be "exceptionally low" for "some time."
"It's just clear that the Fed is hoping to keep those long- term interest rates coming in a downward trend," David M. Jones, president of DMJ Advisors LLC in Denver and a former Fed economist, said in an interview with Bloomberg Radio. "That's the only way they can give aggregate demand a boost and help this economy at least start to get out of recession."
US gross domestic product will contract 1.6 per cent, Japan's will shrink 2.6 per cent and the euro area will decline 2 per cent in 2009, the International Monetary Fund said. Inflation in advanced economies may fall to a record low of 0.3 per cent this year, compared with a prediction in November of 3.6 per cent, the IMF said.
The Fed statement yesterday said its prediction of a "gradual recovery" in the US economy later this year has "significant" risks of failing to materialise. At their meeting, central bank officials gave updated forecasts for gross domestic product, inflation and unemployment that will be released with meeting minutes on February 18.
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