The Fed's ever-increasing participation in financial markets shows no sign of slowing. From Bloomberg on Tuesday:
The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.
The central bank will purchase as much as $600 billion of debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
That should be good news for markets. How much it helps the real economy remains to be seen.
Tuesday's economic data were not encouraging. Again from Bloomberg:
The decline in U.S. house prices accelerated in September and the economy shrank in the third quarter at a faster pace than first estimated as the grip of the credit crunch tightened.
The S&P/Case-Shiller home-price index fell 17.4 percent from a year earlier. The Commerce Department said gross domestic product dropped an annual 0.5 percent as household spending slid the most since 1980. While consumer confidence rose this month, the Conference Board’s gauge remained near the lowest on record.
Elsewhere, Germany confirmed it is in recession. Bloomberg reports:
Germany’s economy, Europe’s largest, fell into recession in the third quarter after a global credit crunch and the euro’s gain to a record stifled foreign demand.
Gross domestic product declined a seasonally adjusted 0.5 percent from the previous quarter, when it dropped 0.4 percent, the Federal Statistics Office in Wiesbaden said today, matching an estimate from Nov. 13. Exports fell 0.4 percent. With imports rising 3.8 percent, net trade dragged down growth for the first time since a year earlier.
And the outlook for the Japanese economy is worsening. From Bloomberg:
The Bank of Japan downgraded its assessment of the economy for the first time in three months, saying growth is becoming “increasingly sluggish.”
“The increased sluggishness in Japan’s economic activity will likely persist over the next several quarters as the slowdown in overseas economies becomes more evident,” the central bank said in a report in Tokyo today. Exports have been falling because of the yen’s advance and slower global growth, and the declines will continue, the bank said.
Not to be outdone, the OECD is painting the economic outlook in stark terms. Bloomberg reports:
The world’s largest economies need further interest-rate reductions and tax cuts to limit the impact of the worst recession since the early 1980s, the Organization for Economic Cooperation and Development said.
“In normal times, monetary rather than fiscal policy would be the instrument of choice for macroeconomic stabilization,” the Paris-based organization said in a report today. “But these are not normal times.”
The U.S., Japanese, U.K. and euro-area economies will all shrink next year as the global financial crisis takes its toll on the broader economy, according to the OECD. While policy action has limited a “period of panic,” the economic uncertainties are “exceptionally large” and growth will recover only gradually from the second half of 2009.
The OECD also cut its forecast for global growth in 2009. The economy of the organization’s 30 members will contract 0.4 percent in 2009 after expanding 1.4 percent this year. Earlier this month, it predicted a 0.3 percent contraction next year.