Fed meeting highlights and text of statement
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Federal Reserve policymakers today signaled that they believe the economy is emerging from recession, but they still committed to holding short-term interest rates at record lows indefinitely.
The Fed’s statement, though largely as expected, triggered modest rallies in the stock market and in the Treasury bond market.
The Dow Jones industrial average was up about 44 points, or 0.4%, to 9,873.55 at about 12:05 p.m. PDT. The yield on the 10-year T-note dipped to 3.42% from 3.45% on Tuesday.
Policymakers said that ‘although economic activity is likely to remain weak for a time,’ they anticipated that ‘policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth.’
The Fed also indicated it would stick with its various programs aimed at pumping money directly into various corners of the financial system. In one new (though not unexpected) development, the Fed said it would stretch out its program of buying nearly $1.5 trillion of mortgage-related securities. Instead of ending the program at year-end the Fed plans to slow the purchases so that they’re completed by the end of March -- a way, potentially, to lessen disruption of the market when the central bank finally steps out of it.
The purchases have been aimed at keeping mortgage rates low.
The Fed also said its program of buying Treasury securities for its own account would end as scheduled by Oct. 31. The central bank has purchased nearly all of the $300-billion in Treasuries it committed to buying in March.
Here is the full text of the Fed’s statement today:
Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. 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 support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time. In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 0.25% and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
-- Tom Petruno
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