The US Federal Reserve was to have issued its latest decision on monetary policy Wednesday, hours after the release of third-quarter data on gross domestic product in the world’s largest economy. Due to the October 1-16 government shutdown, while Congress was unable to agree on a budget for the start of the new fiscal year, non-essential government operations were halted, including data gathering and processing at the Commerce Department’s Bureau of Economic Analysis.
As a result, the scheduled Wednesday morning release of the bureau’s initial estimate of July-September US GDP has been postponed until November 7. The shutdown ended when President Barack Obama signed legislation on October 17 authorising government spending and borrowing into early 2014. The politically divided House and Senate only agreed to the measure with the US Treasury on the brink of default.
Despite uncertainty about GDP, the Fed received important news on October 9, when Obama named Federal Reserve Vice Chairwoman Janet Yellen to head the central bank. She faces the immediate, treacherous task of helming the Fed through the long tapering of its unprecedented loose monetary policies. If confirmed in a timely fashion in the Senate, where Obama’s Democratic Party holds a majority, Yellen will take office after Fed Chairman Ben Bernanke’s term expires on January 31, becoming the first woman to lead the Federal Reserve in its 100-year history.
The Fed under Yellen will have to wean the United States – and the world economy – from years of easy money since the 2008 financial crisis. Acting too fast could send the still-unsteady US economy into recession, but failing to tighten could inflate destabilising speculative bubbles or spark inflation. A USA Today newspaper survey of 48 economists found none who expected the Fed to begin the taper on Wednesday, in the wake of the shutdown. The Fed’s monetary policy statement is due after 2 pm (1800 GMT).
The Fed on Wednesday will at least have the latest inflation data, albeit delayed. The Bureau of Labour Statistics is to issue its September consumer price index at 8:30 am (1230 GMT) Wednesday, postponed from October 16. While the government shutdown did not directly affect third-quarter GDP, the economic impact of the political stalemate in Washington was clear Tuesday in a private report on consumer sentiment.
The benchmark survey of US consumer confidence by the Conference Board, a New York-based business think tank, fell to 71.2 this month, from 80.2 in September. For the long-running index, which is set to a 1985 benchmark of 100, it was the largest one-month drop since August 2011 – when the government went to the edge of default in a congressional confrontation over spending cuts and the federal debt limit. “Consumer confidence deteriorated considerably as the federal government shutdown and debt-ceiling crisis took a particularly large toll on consumers’ expectations,” Conference Board economist Lynn Franco said Tuesday. With the temporary legislation setting up new deadlines for the sharply divided Congress to act in January and February, “confidence is likely to remain volatile for the next several months,” she said.Frank Fuhrig, "Fed meets knowing Bernanke successor – but not latest GDP," Business recorder. 2013-10-31.
Keywords: Economics , Economic issues , Economic policy , Economic system , Economic growth , Economic stability , Economy-United States , President Obama , Monetary policy , GDP