MINUTES OF THE FEDERAL RESERVE JUNE 24 MEETING:

News from NO MORE Mortgage

Below please find some important changes to overall economic policy made by the Federal Reserve Governors in their bi-monthly meeting held in June. These are important because they show the Fed realizes that unemployment is in more trouble than originally estimated. But they actually IMPROVED their forecast for economic output later this year and next, which was a curious development.

One important statistic they did not address is the fact the consumer savings, which was actually negative as recently as 2007 (meaning the average person was spending more than they earned) has risen to the highest level in 25 years, now 6.9%. What this means is that the American consumer has made a historic about-face, and is now saving 7% of their earnings. This has not been seen since the 1980s.

The amount Americans save is ten times the recent stimulus package, and comes in the face of job losses and cutbacks. Since the American economy is based on consumer spending, there is little chance of a recovery while such spending has nearly stopped, while money is going towards savings instead. The government cannot inject bailout money to make up for this money not going into the economy.

Here at NO MORE Mortgage, we believe the savings phenomenon is a good thing, but we understand it has rough consequences on the chances for unemployment to come down anytime soon. We also believe the Federal Reserve is wrong in their forecast for improvement in 2010 and 2011, but we present their minutes for review.

Fed policymakers now believe that the unemployment rate will rise to between 9.8% and 10.1% in 2009 before declining modestly next year. The Fed had forecast in April that unemployment would top out in a range of 9.2% to 9.6% this year, but the rate reached 9.5% in June, so their forecast was too low.

The Fed also switched to a slightly more optimistic forecast for the economy. They forecast that the nation’s gross domestic product, the broadest measure of economic activity, should decline by between 1% and 1.5% in 2009, compared to an earlier forecast of a drop of between 1.3% to 2%.

Policymakers also raised their forecast for GDP growth in 2010 and 2011, calling for growth of between 2.1% and 3.3% next year and growth of 3.8% to 4.6% the following year.

The Fed said in its forecast that it expected a “sluggish” recovery in the second half of this year, and that problems in the credit markets would allow for only gradual improvement in the economy next year.

The central bank also said most of its members believe it could take as long as five or six years for the economy to achieve a sustainable growth rate and for desired levels of unemployment and inflation to meet the central bank’s objectives.

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