A Stronger Commitment to Low Rates

- "Recovery’s loss of momentum coupled with less secure financial supports to growth has set the stage for Fed officials to signal a stronger commitment to accommodation efforts next week. Policymakers are expected to reinforce language that encourages lower forward rates in an attempt to seal off tail risks of renewed recession and deflation."
- "We do not expect a new wave of asset purchases but reinvesting the proceeds of MBS redemptions would reinforce the policy duration commitment. The earlier focus on exit strategies probably dulled the credibility of the Fed’s low rate commitment but highlights the difficulties of achieving policy success with unconventional strategies."
- "Financial conditions improved slightly in July, and there are encouraging signs that consumer credit is loosening. A slow rebound in car sales continues and a gradual lift in sales of pickup trucks hints that small businesses are spending more. Nonetheless, overall financial conditions remain too weak to support a solid recovery."
- "Many industries continue to add to headcount and working hours consistent with modest economic growth around 2% near term. But overall employment gains are being held back in part by downsizing in construction, finance and state and local government. The latter group lost 66,000 jobs in July. Factory employment gains likely are nearing an end."

Citigroup Comments on Credit 20100806

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