FOMC Minutes Shows Rising Pressures along with Deteriorating Market Conditions

The Minutes for the FOMC rate decision held on February 18 expressed today the giant pressure the Feds are facing which led them to approve the purchase of Mortgage Backed Securities in order to prevent further deflation in the US economy, along side the Committee members discussed the amount of which will be used to purchase long term securities and the enforcement of Quantitative Easing policy.

The Federal Reserve approved unanimously on February 18 to preserve the previous target range as it was expected among 0.0% and 0.25% and thus keeping the benchmark interest rate settled at record lows, in addition the committee members agreed to extend the purchase of Mortgage Backed Securities by $750 billion taken the total value to $1.25 Trillion throughout this year.

The Federal Reserve also increased the purchase of GSE debts by $100 billion thus raising the value of purchases to $200 billion, these measures aim to enhance the tightening credit conditions and unleash the frozen credit lending by banks after slashing off defaulting assets from banks' and financial firms' balance sheets. In addition the Fed's have come up with the TALF program in order to facilitate further credit and liquidity to the household and small businesses sector while the program is expected to expand further and acquire additional financial assets.

The Federal Reserve followed the same path of BoJ and BoE, which is Quantitative Easing that aims to buy long term treasury securities in order to provide further funding for the financial programs the Fed's use to purchase defaulting assets from companies balance sheets, to supporting the world leading economy to recover from the worst financial crisis since the Great Depression.thus the Fed's approved to purchase $300 billion long term Treasury Securities throughout the upcoming six months.

The rising pressures on the feds' committee forced them to such drastic measures which are considered unusual, the Federal Reserve stated throughout his meeting the persisting fears of further deterioration in the economy and raising unemployment rates along with the obvious recession major sectors in the economy are suffering from such as the housing and labor sector.

Lack of spending continues to drag the economy down, but with the ongoing tight credit conditions that suffocates consumers along with financial firms continues to diminish any sign of near recovery, the Feds' projections indicates that the economy will contract further throughout the upcoming period, which is clearly shown on the Feds' budget as companies demands for more liquidity inclines indicating how vulnerable the economic conditions in the world leading economy has come.

As for economic growth the Federal Reserve has lowered his GDP projections for this year and the upcoming year, and anticipating further job sheds and rising unemployment, also the Fed's project inflation to maintain its positions below the desirable levels thus rising deflation risks.

There are some officials in the Federal Reserve that sees stability signs in some sectors and slight improvement in some of the fundamentals released such as the consumer spending and housing starts but others noted that rising unemployment will force consumers to lower their spending and thus save more which shrinks liquidity throughout the market, and as we know consumer spending accounts for 2/3 of the US growth.

On the long term the affect of all the huge liquidity the government has provided the market with will backfire on the economy, therefore an increase of financial programs that aims to purchase Treasuries will force the Federal Reserve to print more money in order to facilitate these huge purchases but it is considered the best way to preserve the Federal Reserve budget.

This is known as Quantitative Easing which will result in more inflationary risks on the long term but the Federal Reserve is focusing on rescuing the world leading economy from the giant hole he fell into in order to end the worst financial crisis since the Great Depression and bring stability to markets once more.

Meanwhile the Federal Reserve announced today that he completed the purchase of $2.97 billion worth of Treasuries with a mature value ranging between one to two years which is part of the ongoing effort to ease of the effect of recession and lower borrowing costs, largest value for a single purchased security was valued at $905 million or 1.25% from the overall maturing treasuries dates October 2010, while the sixth operation to purchase further treasuries are delayed until the securities maturing date set among April 2010 till February 2011 is called.

Ecpulse

disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk