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Economy in Brief

FOMC Cites Economic Improvement But Leaves Rates Unchanged
by Tom Moeller September 23, 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 action was as expected and left the Fed funds rate at its lowest level ever.

The Fed indicated that "economic activity has picked up following its severe downturn." In addition, as at earlier meetings, it noted "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."

Regarding inflation the FOMC statement indicated that "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 its effort to promote economic liquidity, the Fed used similar language as in June that "... 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. As previously indicated, the Committee indicated that the Federal Reserve’s purchases of $300billion of Treasury securities will be completed by the end of October 2009. Moreover, "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.

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.

Against the backdrop of monetary ease, forward indicators are signaling the possibility of future inflationary risk. The CRB Commodity Price Index has risen roughly 25% since yearend while the trade-weighted value of the dollar has fallen 13% since March.

  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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