FOMC Leaves Rates Steady but Signal Economic Weakness to Continue and Rates to Remain Exceptionally Low!!!

The Federal Open Market Committee left the benchmark interest rates steady at the current target range between 0% and 0.25% in a unanimous decision inline with markets expectations, as the ongoing recession continue weigh down on economic activity in the world’s largest economy.

Markets were widely expecting the decision however they were waiting for the accompanying statement, which signaled that the pace of recession is indeed easing, while conditions in financial markets have been improving, while the Fed signaled that consumer spending has stabilized over the last few months but remains weak amid rising unemployment, tightened credit conditions, and diminishing wealth.

Meanwhile the Fed signaled that businesses are reducing their investments though they seem to have adjust their inventories to the current levels of demand, meanwhile the Fed expects the economy to “remain weak for a time”, though the Fed expects that the monetary, credit, and quantitative easing along side the fiscal stimulus to help revive economic growth.

The Fed highlighted that the recent rise in energy and commodity prices shouldn’t affect the outlook for inflation, as rising spare capacity amid the ongoing recession should continue to suppress prices, and accordingly the Fed judged that “inflation will remain subdued for some time.”

The Fed signaled that interest rates will remain “exceptionally low for an extended period” in order to provide support for “mortgage lending and housing market and to improve overall conditions in private credit markets”, the Fed also assured that they will purchase up to $1.25 trillion of agency mortgage backed securities and up to $200 billion of agency debt, and will also purchase up to $300 billion of Treasury securities.

The Fed signaled that it will continue to monitor the economic outlook and conditions in financial markets as well as monitoring their balance sheet and make the proper adjustments to its credit and liquidity programs as needed to insure the economy is on the right track to recovery.

Markets were rather pessimistic after the statement, as it disappointed investors since it signaled the economy will continue to suffer the misery of the ongoing recession and that it’s still too early to judge that a recovery is near.

The U.S. dollar gained heavy ground against major currencies, as the Euro dropped against the dollar back to the $1.3890s level setting a new intraday low at 1.3888, while the British Pound also dropped against the dollar to set an intraday low at $1.6367.

As for equity markets, the erased earlier gains and dropped in red as it shed so far 25.55 points or 0.31% and was last trading at 8297.36, while the S&P 500 index retreated though remains in green territory as it’s gaining so far by 4.35 points or 0.49% and was last trading at 899.45, and the NASDAQ Composite index also retreated slightly is it’s gaining so far by 24.57 points or 1.39% and was last traded at 1789.49, data as of 14:41 New York time.

Ecpulse

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