NEW YORK – The Federal Open Market Committee voted to keep the target range for the federal funds rate at 0 to 1/4 percent and also said the funds rate is likely to stay “exceptionally low” for an “extended period.”
Economic activity and the housing market have picked up and “deterioration in the labor market is abating,” the FOMC said in a statement. Also, household spending seems to be expanding moderately, while “constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.”
“Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales. Financial market conditions have become more supportive of economic growth. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability,” the statement said.
Inflation should remain subdued as substantial resource slack should dampen cost pressures.
The FOMC expects “economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the statement added.
The Fed is buying $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt, but is gradually slowing the pace of these purchases, and expects to complete these transactions by the end of the first quarter of 2010.
Special liquidity facilities are still seen expiring on February 1, 2010, these facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. “The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth,” the Fed said.
