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Minor Pick Up In US Economic Activity

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The Federal Reserve Bank of Chicago publishes a useful monthly activity statistic for the US economy. The Chicago Fed National Activity Index attempts to capture overall economic activity along with the resultant inflationary pressures. The Index for February has just been released at 0.14 which is a moderate improvement on the previous months negative 0.39 reading (just revised to negative 0.45).

US economic activity has been somewhat mediocre of late, there have been plenty of US data releases over the past week and these have proven to be a mixed bag. This conflicting data however has tended to be within minor deviations, positive and negative, from expectations. It is this business as usual level of activity that is frustrating US market investors. The steady as it goes story is not applying to other recovering developed economies, by contrast Britain is powering ahead while the Eurozone pickup is coming in the form of somewhat of a white knuckle roller coaster ride. This is making US investments look a lot like low risk low yield opportunities.

There is no room to criticize the Federal Reserve for their current handling of the US recovery, it is not exciting but it is stable and moving in the right direction at an acceptable pace. The Feds conservative approach is paying dividends, last week’s announcement that they will no longer be tying monetary policy decisions to predetermined metrics such as unemployment and inflation was met with an element of disappointment by the markets. The reality however is that the Fed is experienced, disciplined and forward looking enough to make the judgment to control the pace of the recovery right from the very beginning. The upshot here is that in building a solid recovery base, the Feds slow and steady approach will require it to maintain loose monetary policy for a period longer than its peers.

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