Fed says economy is 'leveling out'

By Marcie Geffner - LendingTree.com

The U.S. economic recession may not be over yet, but there are some signs that the situation may be improving, according to the Federal Reserve. That improvement — and the Fed’s plan to keep interest rates low for the time being — are good news for borrowers.

“Economic activity is leveling out,” the Fed suggested in its Aug. 12 statement, and what’s more, this “leveling out” can been seen throughout different sectors of the economy. The Fed noted signs of economic improvement for the financial markets, households and businesses.

“Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing….Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales,” the Fed reported.

Economic Outlook Improved, But Uncertain
Despite those favorable trends, not all is rosy in the U.S. economy and much of the outlook is still uncertain.

For instance, consumer spending accounts for a large share of U.S. economic activity. It appears that consumers have loosened the reins on spending, but whether that inclination will be temporary or sustained is not yet known.

Similarly, businesses have reduced the cost of large inventories of unsold products, but whether that will help them return to profitability or only shrink their losses remains to be seen.

Indeed, economic activity may “remain weak for a time,” the Fed warned. Given that expectation, the Fed still plans to continue its current policies to promote economic recovery and ward off inflation, which the Fed predicted would “remain subdued for some time.”

Interest rates still low
The Fed’s policy of very low interest rates hasn’t changed. The Fed decided to keep its target range for the federal funds rate, a bank interest rate, at just zero to 0.25 percent, the lowest possible level. The Fed also said that it still believes economic conditions will warrant “exceptionally low levels of the federal funds rate for an extended period.”

Although the Fed sets a target for the federal funds rate, the Fed doesn’t set rates that consumers pay on auto loans, mortgages, credit cards or other consumer debts. Those interest rates can — and do — fluctuate daily due to a variety of factors.

© 2009 LendingTree, LLC. This story, "Federal Reserve says economy is leveling out," is reprinted by the author with written permission of LendingTree, LLC.