The Federal Open Market Committee released on Wednesday its latest statement on the condition of the U.S. economy. Continued improvement and stabilization were seen in several key areas, such as financial markets and consumer spending.
However, the committee, in a unanimous vote, decided to keep the federal funds rate at a target of 0 to 0.25 percent. The vote was not much of a surprise as many economists anticipate the Fed will keep rates at the current target well into 2010.
With extended periods of low interest rates, inflationary pressure must be watched. The committee cited substantial resource slack as a main reason cost pressures would likely remain subdued, thus keeping longer term inflation in check.
According the Mortgage Bankers Association, home loan applications jumped to their highest level since May, rising 12.8 percent for the week ended September 18, compared to the prior week.
The FOMC added that household spending seems to be stabilizing, but remains constrained by continued unemployment, sluggish income growth, and tight credit.
The recognition of improvement followed by actions that continue or add to economic support seemed to be the theme in the FOMC statement, which was further evidenced by the Feds decision to extend the $1.25 trillion mortgage-backed asset purchasing program.
Thus far, the Fed has purchased $857 billion and originally set the end of 2009 for the program’s conclusion. However, the program’s end date has now been pushed out till the first quarter of 2010.
The Fed did not increase its dollar amount for purchases; instead it will buy at a slower pace which will continue to provide underlying support for the market while extending that support.
No changes were made to the Feds $300 billion Treasury buying program, which is set to end next month. According to reports, only $11 billion remains in the program for purchases.
