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Economy in Brief

FOMC Cites Economic Improvement But Leaves Rates Unchanged
by Tom Moeller November 4, 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.

Citing economic improvement, the Fed stated that "Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales."

Continued strengthening of economic activity in a "context of price stability" was anticipated.

Regarding inflation the FOMC statement again 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 during the last meeting. "... the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. 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 $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. 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.

A complete text of the Fed's latest press release can be found here.

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

The Determinants of International Flows of U.S. Currency from the Federal Reserve Bank of New York 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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