US Federal Reserve downgrades economic outlook, keeps interest rates low (+ analysis); UN calls for more Pakistan flood aid, says international response is disappointing; Venezuela and Colombia restore ties; FIFA investigates reports the North Korean football coach has been sentenced to hard labour; and more

Top of the Agenda: Worried About Recovery, Fed to Buy US Debt

The US Federal Reserve, expressing concern over economic recovery (NYT), said Tuesday it plans to reinvest the proceeds of maturing mortgages in long-term US Treasury debt.

Fed officials downgraded their economic outlook, saying the "pace of recovery in output and employment has slowed in recent months" and in the near term was likely to be "more modest" than anticipated. The Fed repeated its commitment to keep its target for the federal funds rate (WSJ), at which banks lend to each other overnight, at "exceptionally low levels" for an "extended period." The decision is a turnabout from only a few months ago, when officials were discussing when and how to raise interest rates and gradually shrink the $2.3 trillion balance sheet amassed through the Fed's response to the 2008 financial crisis.

The Fed's move drew mixed reactions from the markets (FT). In the United States, stocks reversed and pared their losses, closing at their highest point of the day. But in early trading on Wednesday, Asian markets fell to a two-week low. European shares were also lower, with the steepest declines in the UK and Germany. Meanwhile, on Tuesday, President Barack Obama signed an emergency $26 billion jobs bill (AP) that Democrats say will save three hundred thousand teachers, police, and others from election-year layoffs.

Analysis

Read economists' reaction to Fed's latest policy here (WSJ).

In the New York Times blog Economix, Catherine Rampell says the Fed has made history by adding a new benchmark to control its monetary policy: the size of its balance sheet.

Background

Read the full text of Fed statement from Tuesday's meeting here.

Phil Izzo of the Wall Street Journal compares the Fed's latest statement with that in June to see what has changed.

 

PACIFIC RIM: China's Economy Slows

Key drivers of China's economic growth--investment and factory output--continued to cool (Reuters) in July, as the government steadily steered credit growth back to normal after a record lending spree in 2009 to counter the global financial crisis. The statistics, released by the government, were generally in line with market expectations. Meanwhile, China's trade surplus surged last month to its highest level in eighteen months, as growth in imports slowed and exports rose.

North Korea: Football's governing body, FIFA, launched an investigation (BBC) into allegations that North Korea punished the coach and some players after its team lost all its World Cup matches. Radio Free Asia alleged last month that the squad was publicly humiliated and coach Kim Jong-Hun sentenced to hard labor.

 

ELSEWHERE:

- Bomb Kills Eight Iraqi Soldiers
- Call for More Pakistan Flood Aid
- Venezuela, Colombia Restore Ties

 

This is an excerpt of the CFR.org Daily News Brief. The full version is available on CFR.org