The Fed’s Vice Chairman Kohn speaking on the economic outlook is not saying anything new. He discusses the signs of improvement that will lead to growth in Q3, “dissipation of some of the forces that had been exerting downward pressure on the economy during the preceding several quarters,” inventories, stabilized housing, business spending on equipment and software and some signs of stabilization with final demand. But he also has the obvious caveats. Net-net, “US economic activity will proceed at a moderate pace in the 2nd half of this year before strengthening some in 2010.” He remains dovish on inflation as he has little concern due to “substantial slack” in labor and product markets and sees “stable longer term inflation expectations.” He repeats the FOMC view that rates will stay low for a while as they cling to the belief that it’s the cure to what ails us.
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