After the Fed Meeting (26 June 2009)

The US Federal Reserve has had their meeting. As widely expected, they did not touch interest rates at all, instead leaving it at near zero. They even stopped talking about worrying about deflation. They are going to continue to buy back big amounts of US debt, and they will continue to keep liquidity in the system. They also indicated that they felt that the US recession was easing.

Markets fell initially because the Fed not raising rates was already priced in. However, as the week continued, and more digested that the Fed’s priority in the near future was going to remain the revival of the economy, stock markets globally rose. But expect to see lots of volatility in the weeks ahead.

More news from the Commerce department in the US just arrived. Based on the new numbers, the US economy did not drop quite as much as they originally though it did. US gross domestic product (GDP), fell 5.5% in the 1st quarter of 2009, which was not as bad as the original 6.1% they said it dropped. (They already revised that down to 5.7% once, this is the second revision).

What it does highlight though is that economic numbers are generally well behind the curve. We are at the end of the second quarter already and markets are looking into 3rd and 4th quarter of this year. Yet, the economists are still trying to fine tune the numbers for the 1st quarter. All it does tell me is that people, including economist were overly pessimistic about the economy.

Things can and will bounce back. A fore warning though, the recovery in the US is likely to be a rocky one. We will see more bankruptcies there, and even here in Asia. Badly run companies that run out of cash will still die, no matter how big they are.

US have a lot of structural issues to deal with. But at the same time, we should never under estimate the ingenuity of America. This is the nation that invented the internet, the Ipod, and many other things.

I sometimes sound very negative on US. It is because I have to acknowledge the big number of issues they have to deal with right now. It doesn’t mean I am writing them off though. If its any nation that can reinvent itself and come back, it’s America. But that’s good, because Asia can’t just grow on its own. Asia would be in a far better position to grow in future with a US economy that is recovering than a US economy that stays down on its back.