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FOMC Leaves Rates Unchanged and Signals Rates to Remain at "Exceptionally Low" Levels!

Wed, Nov 4 2009, 19:48 GMT
by ecPulse.com analysis team

ecPulse.com

The Federal Open Market Committee decided today to leave its benchmark interest rates unchanged at a record low at a target range between 0% and 0.25% and inline with markets expectations, whereas the FOMC confirmed that interest rates will remain at exceptionally low levels for an extended period of time.

The Fed signaled that economic activity has indeed continued to pick up over the past period, whereas conditions in financial markets were “roughly unchanged”, meanwhile the Fed signaled that activity in the housing market has been rising over the past few months, while consumer spending was still expanding though it remains under pressure “from ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”

The FOMC decision was indeed unanimous, as the FOMC judged that businesses are still cutting on fixed investments and staffing, however, the Feds signaled that the pace of contraction in investments as well as staffing is indeed easing, while the Feds singled that businesses are still adjusting their inventory levels to meet the current sluggish demand levels.

Meanwhile, the Feds expect the economy to remain weak over the upcoming period, and accordingly the Feds believe that inflation will remain under control, especially as expectations for inflation over the long term are still stable, which further supports the current outlook for inflation, as the Feds still believe “inflation will remain subdued for some time.”

The Feds confirmed that they will purchase a total of $1.25 trillion of agency mortgage-backed securities and “about $175 billion of agency debt”, which represents a reduction from the $200 billion of agency debt to be purchased by the Feds, as the Feds explained that the reduction is “consistent with the recent path of purchases and reflects the limited availability of agency debt.”

The Feds signaled that they will slowdown purchases of both agency debt and MBS, as the program is set to end by March 2010, and the Feds assured markets that they will continue to “evaluate the timing and overall amounts of its purchases of securities” and will act according to the developments in financial markets.

The statement didn’t add anything new to investors, as the only thing that changed is the amount of agency debt purchases, however, the outlook for the economy remains the same. Stock markets accordingly were able to maintain its gains, as so far the DJIA was up by 1.14% 111.24 points to trade at 9883.15, while the S&P 500 index was up by almost 1% and was last traded at 1056.25, and the NASDAQ Composite index was up by 14.95 points to trade at 2072.27, data as of 14:41 New York time.

Published on  Wed, Nov 4 2009, 19:49 GMT