Federal Reserve Leaves Rates Unchanged; Comments on Global 'Strains'

Following a one day meeting of the Federal Reserve Open Market Committee, as expected, the Committee announced that it would leave target interest rates at current levels.

In its statement, it said:

The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook.

The moderate growth forecast continues to suggest that the Fed simply forecasts the trend in front of it and has no clue as to when changes in direction or pace may take place.

As for strains in global markets, meaning the eurozone, that the Fed mentions, this a very strong indication that, if U.S. banks are threatened in any significant way by the eurozone crisis, the Fed will step in immediately to backup the banks.

Since the Fed continues to forecast the immediate future as a continuation of passed trends with dash of hope that things don't get worse, they see little problem with future inflation:

The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

This optimism on inflation is coming, I might add, from a Fed that is pumping money at a near 15% annualized rate.

Alert: FOMC Meets

The Federal Open Market Committee will meet Tuesday and Wednesday.  It is expected the committee will leave rates as they are--expect an announcement Wednesday afternoon.

FOMC Statement Is Out

There were no interest rate changes made at today's meeting of Federal Reserve Open Market Committee. None were expected.

Thomas M. Hoenig continues to dissent from the views of other FOMC members and is calling for removal of language that states the Fed will maintain low interest rates for an extended period of time.

No mention was made in the statement of the fact that the effective Fed Funds rate is trading at 0.20%, only 5 basis points away from the top end of the Feds target Fed funds range.

The entire statement can be read in the EPJ vault, here.

FOMC Expands All Meetings to Two Days

The Federal Open Market Committee on Friday announced it would expand its March, August, September, and December meetings in 2009 to two days to allow additional time for discussion. Thus, all eight scheduled meetings in 2009 now are planned for two days.

Gives you a sense of comfort, doesn't it? :)

Fed: We Are Going To Pump Money Until It Floods the System

Following its regualarly scheduled two day meeting on the economy and interest rates, the Fed issued a statement that said:

The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.

In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee's policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve's balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Dennis P. Lockhart; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs.

Alert: Fed Meets

The FOMC has a regularly scheduled meeting today and tomorrow.

Policy decisions will be announced tommorow at 2:15 ET.

FOMC Statement

Below is the full statement issued by the Fed's FOMC in conjunction with their decision to maintain the Fed Funds rate at 2%:


For immediate release

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner.


-EPJ Original Documents

ALERTS: Fed and Treasury

FOMC monetary policy meeting today.

Two scheduled Paulson appearances:

Tuesday, September 16, 2008, 10:00 a.m. EDT
Secretary Henry M. Paulson, Jr.
Testimony on Recent Regulatory Actions Regarding Fannie Mae and Freddie Mac
Senate Committee on Banking, Housing and Urban Affairs
538 Dirksen Senate Office Building
Washington, D.C

Tuesday, September 16, 2008, 1:30 p.m. EDT
Secretary Henry M. Paulson, Jr.
Remarks on the Economy & the Housing Market
The Brookings Institution
Falk Auditorium
1775 Massachusetts Avenue, NW
Washington, D.C

-EPJ Newsdesk

The Morning Ahead

The factors to monitor in the morning are near overwhelming.

To start, we have an FOMC meeting. Will the Fed cut rates?

Henry Paulson is scheduled to testify before Congress in the morning, and later in the day he is scheduled to give a speech at the Brookings Institute about the economy and housing. He is likely to be very cautious at both venues about what he says. Will he by accident trigger more downside action?

Lehman has filed for Chapter 11 and other banks have continued to trade with it. Yet, despite being in Chapter 11, and presumably under court supervision, Lehman continues to push for a shotgun sale of its money management firm, among other assets. How will this activity sit with the bankruptcy judge and other bankers?

The Merrill Lynch acquisition by Bank of America looks shaky. Will the deal still be alive by the end of the day? How tight of an acquisition contract was John Thain able to draw up in such an intense, short term period?

What news will develop from the AIG situation?

How will the markets react to the downgrade of WaMu?

Will the panic in the investment bank arena spread to the two remaining major independent players, Morgan Stanley and, the very well connected, Goldman Sachs? 

How bad will things get overnight in overseas trading?

Have a good nights sleep.

-Robert Wenzel

Alert: FOMC Meeting

The Federal reserve has a regularly scheduled FOMC monetary polcy meeting scheduled for Tuesday.

-EPJ Newsdesk

Fed Leaves Rates Unchanged

For a second straight meeting the FOMC has left interest rates unchanged. The Fed will maintain the Fed Funds rate at 2% and the Discount rate at 2.25%.

The statement accompanying the announcement continued to show the Fed's confusion on whether to fight the financial crisis or inflation:

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Richard Fisher continues to be the sole inflation hawk on the Board.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Fisher, who preferred an increase in the target for the federal funds rate at this meeting.

Alert: FOMC Meets Next Week

The Federal Open Market Committee will meet Tuesday Aug. 5 for its regularly scheduled meeting. All indications suggest that they will hold the Fed Funds rate at 2%.