Fed phasing out emergency Treasury purchases

With the US economy stabilising and financial markets getting better, the Federal Reserve is getting ready to move out of emergency mode. Reuters reports:

The Federal Reserve said on Wednesday the U.S. economy was showing signs of leveling out two years after the onset of the deepest financial crisis in decades and it moved to phase out one emergency measure.

The U.S. central bank also kept its benchmark short-term interest rate steady near zero and said it would likely stay there for an extended period to guide the way to recovery.

The Fed made its clearest statement to date that it sees the recession nearing an end and that shattered financial markets are healing.

"Information since the Federal Open Market Committee met in June suggests economic activity is leveling out," the Fed said, referring to its policy-setting panel. "Conditions in financial markets have improved in recent weeks."

However, the Fed remains cautious.

Still, the Fed renewed its warning that economic activity is likely to stay soft for "a time." Household spending, while stabilizing, is still weak as a result of the grim labor market and tight credit, the Fed said...

The central bank cautiously moved to pull back some of that help for the economy on Wednesday, signaling it would slowly phase out a program to buy $300 billion in longer-term Treasuries by the end of October.

Trade data released on Wednesday provided further evidence of an improving US economy. From Bloomberg:

The U.S. trade deficit widened less than forecast in June, reflecting a second consecutive gain in exports spurred by a pick-up in economies around the world.

The gap increased 4 percent to $27 billion from $26 billion in May, which was the lowest level in almost a decade, Commerce Department figures showed today in Washington. Exports gained 2 percent, helped by stronger demand for goods such as semiconductors and aircraft engines, while imports rose 2.3 percent, led by a higher cost for oil.

Elsewhere in the world, Japan also appears to be climbing out of recession, with industrial production rising 2.3 percent in June.

However, in the euro area, industrial production unexpectedly fell in June. Bloomberg reports:

Output in the 16-nation euro area dropped 0.6 percent from May, led by a 4.2 percent decline in production of durable consumer goods, the European Union’s statistics office in Luxembourg said today. Economists had predicted a gain of 0.3 percent, according to the median of 30 forecasts in a Bloomberg News survey. From a year earlier, June output fell 17 percent.