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A Simple Explanation Of The Federal Reserve Statement (August 12, 2009 Edition)

2009
08.12

Reviewing the August 12 2009 FOMC AnnouncementThe Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is “leveling off” and that financial markets continue to improve.

The change in verbiage is the rosiest from the Fed since the start of the recession and it may signal that the downturn’s end is near.

That said, the Fed highlighted lingering economic soft spots that could still impact a recovery through the end of 2009 and into 2010.

  1. Ongoing job losses
  2. Reduced “housing wealth”
  3. Tight credit conditions

Furthermore, rising energy costs remain a threat to inflation.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to honor its $1.25 trillion commitment to the mortgage bond market.

Market reaction to the Fed’s press release is muted. With no real change in message and a basic confirmation of what most investors already knew, Wall Street sees no reason to panic. Mortgage rates are unchanged.

The FOMC’s next scheduled meeting is September 22-23, 2009.

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