U.S. Federal Reserve Outlook Darkens on Economy

deep contraction in first half, with an even longer downturn possible, unemployment rising into 2010

Warning Signs From the Minutes:

  • Nation’s output to shrink sharply in first half of year
  • Unemployment climbing into 2010
  • Risk that inflation could get too low
  • Debate over growth of the Federal Reserve’s balance sheet
  • New orders for manufactured goods, a key sign of health in the industry and in the U.S. economy in general, fell by 4.6% in November to $ 385 billion, the Commerce Department reported, following a downwardly revised 6% drop in October from the previous month.

Signs of Improvement

Still, some financial indicators are showing signs of improvement, likely in response to massive amounts of fiscal stimulus and Fed rescue efforts in the works.

Junk bonds, mortgages, stocks and commodities, the markets that were most battered in the second half of 2008, have staged rebounds in recent weeks. On Tuesday, the Dow Jones Industrial Average rose 0.69%, while the S&P 500 added 0.78%. These indexes have gained 19% and 24% respectively from their November lows.

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