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Economy in Brief

FOMC Leaves Rates Unchanged; Notes Financial Market Improvement & Retail Spending Stabilization
by Tom Moeller August 12, 2009

In an anticipated and unanimous vote, the Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent." The discount rate also was left unchanged at 0.5%. The Fed funds rate remained the lowest ever.

The Fed indicated that "Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

Again, much of the commentary on the economy was similar to the last two meetings and concluded that "Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability."

Regarding inflation the FOMC statement acknowledged the rise in energy & other commodity prices, but concluded that substantial economic slack will leave inflation "subdued for some time."

In its effort to promote economic liquidity, the Fed used similar language as in June, "... 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 up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities."

New was the indication that "the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October."

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

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

The Shadow Banking System: Implications for Financial Regulation from the Federal Reserve Bank of New York can be found here.

What Do We Know (And Not Know) About Potential Output? from the Federal Reserve Bank of St. Louis is available 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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