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Economy in Brief

FOMC Leaves Rates Unchanged At Historically Low Level; Fed's Balance Sheet Expanded
by Tom Moeller March 18, 2009

In an anticipated move the Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent."  The discount also was left unchanged at 0.50%.  The Fed funds rate remained the lowest ever.

Regarding economic liquidity, the Fed focused on the housing market indicating that "To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion."  Additional action to provide liquidity also was taken.

Regarding economic growth, the Fed indicated that "that the economy continues to contract.  Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending.  Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment."

"... the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth."

Regarding inflation the same statement was offered as at the last meeting. "... that inflation will remain subdued.  Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

The decision was unanimous amongst FOMC voters.

For the complete text of the Fed's latest press release please follow this link.

The Fed's effort to liquefy the economic system has succeeded.  Growth in the money supply measure M2 has been running at double-digit rates versus five-to-six percent from 2006 and during all of 2008.  Over the last three months growth in MZM (M2 less time deposits, plus all money market funds) has been 22% versus 14% during all of last year and 9% during 2007.  Growth in the monetary base ran at a 32% annual rate from November to March after the level of the base doubled last autumn.  This year, the bond market has met these liquidity injections with uncertainty but on balance has been not overly concerned about the eventual inflationary consequences.

The Haver databases USECON, WEEKLY and DAILY contain the figures from the Federal Reserve Board. 

Credit and Liquidity Programs and the Balance Sheet from the Federal Reserve Board is available here.

G-20 Asks IMF to Track, Assess Global Crisis Response is a recent article published in the IMF Survey Magazine: In the News and it can be found here

  Current Last December 2008 2007 2006
Federal Funds Rate, % (Target) 0.00 - 0.25 0.00 - 0.25 0.16 1.93 5.02 4.96
Discount Rate, % 0.50 0.50 0.50 2.39 5.86 5.96
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