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Media Misinterprets Fed

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The Federal Open Market Committee has issued its anticipated statement on interests rates, the money supply, and the overall economy. Here’s the Associated Press version (which I also heard on the radio):

The Federal Reserve on Wednesday said the recession is easing, but that the economy likely will remain weak and keep a lid on inflation.

Against this backdrop, the Fed held a key bank lending rate at a record low of between zero and 0.25 percent, and pledged again to keep it there for "an extended period" to help brace activity going forward.

Marketwatch has a similar take, calling the Fed “more upbeat”:

The Federal Open Market Committee issued its most upbeat statement about the economy in recent memory on Wednesday, saying that the downturn is slowing and deflation is no longer a big threat. In a statement, the Fed stayed the course on interest rates and Treasury purchases, as expected. The Fed highlighted rising energy and commodity prices, but said inflation was likely to "remain subdued for some time." Fed officials pointed to improving conditions in financial markets.

The Fed actually said something different:

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales.

The recession is not easing. According to the Fed, the economy is still shrinking. Contracting more slowly is contracting. Household spending is constrained, wealth is diminishing, businesses are cutting investments and staff. The cost of inputs is rising. Only the huge banks seem to be doing better—after receiving trillions of our children’s money.

The patient is still bleeding through its bandages (TARP, porkulous, bailouts). We’re just dying a little slower.