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The US Recession May Be Over, But The Fed Maintains Its Interest Rate Policy
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Thursday, November 05, 2009 GMT
By: Mike Campbell
The official figures for Q3 gave a projected annualised growth of 3.5% for the world’s largest economy, ending a recession that had lasted for more than a year. However, the US Federal Reserve has maintained a cautious approach and has continued with its policy of maintaining a low interest rate as a stratagem to stimulate the economy. As widely expected, the Fed held the rate at 0.25% and indicated their belief that the rate would stay at its historic low value for an extended time. US unemployment remains at 9.8% of the workforce and may well get worse before any new jobs are created as a result of the recovery.
Some analysts are concerned that the US financial stimulus measures were the underlying reason why the US economy returned to growth in Q3, rather than any fundamental recovery. The “cash for clunkers” car scrappage scheme gave individuals $3500 towards the purchase price of a new car if they scrapped an old car. It has been credited with stimulating significant (transient) demand in the automobile sector. The national initiative cost the government $3bn and ran in July and August. Car sales did fall sharply for September, once the scheme ended, data released by Ford and GM for October were encouraging. The full US stimulus package has cost $787bn so far.
In Europe, both the Bank of England and the European Central Bank are due to meet to determine interest rates. It is widely expected that both institutions will leave rates on hold. The UK economy surprised many analysts last months when it failed to emerge from recession.
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