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Thursday, June 25, 2009

Federal Reserve Eases On Interventions

On Thursday the Fed announced that it will end or significantly curb the use of three emergency programs that it had been using to provide cash to brokers and money-market funds.

The developments are additional signs that the Fed sees improving financial markets and that it will begin honoring its promise to back out of its unprecedented interventions as market conditions warrant.

Michael Feroli, from JPMorgan Chase was quoted as saying, "The crisis is abating and the worst is behind them." Feroli is an ex-Fed official.

A Fed statement released Thursday also states, "Conditions in financial markets have improved in recent months." The officials state they will continue to "monitor closely" the need for their interventions and appropriate timing for backing out of other intervention measures.

The Fed noted that it will also reduce its program to provide needed cash to commercial lenders. You'll remember that we noted those commercial markets thawing out considerably and reported that in late Feb.

Some economists have worried that since the Fed policies were so accommodating during the recession, it will be difficult avoid inflation as the Fed attempts to unwind its program during the recovery. Thus far inflationary pressure has not materialized.

Ciaran O'Hagan of Societe Generale stated that the Fed's actions on Thursday would begin to slowly reduce the market's "fears that the Fed’s generosity is excessive."

Meanwhile as the stock markets continue to reflect on their huge run in recent months, it is to be expected that skeptics remain... and accordingly the trend continues to show stocks moving sideways.


  1. I was just listening to NPR's marketplace and a commentator from Forbes, I believe, said that the markets are in denial about how much bad debt is on the balance sheets of many companies and that it will never be worth enough to spur a recovery. Are we optimists just plain wrong about the signs of recovery and ignoring the reality?

  2. I don't think so, on the contrary I'd say that most mainstream media is ignoring the reality of recovery. Bad debt is not what kills companies. Lack of growth and innovation does.


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