Fundamental Updates \Nick Nasad \ 2:24 PM EDT \ March 16th, 2010
The Fed kept its language regarding keeping interest rates at their low levels for an “extended period” of time. That means rates should remain at their current levels for at least 6 months. Economic conditions continue to strengthen, pushed up by higher business spending and a moderate rise in household spending. Trouble areas in the economy include high unemployment, flat housing starts, and continued contraction in bank lending. All in all the statement lacked much in terms of surprise and following its release Fed-funds futures showed a 70% chance of a November rate hike when the odds were at 84% prior to the FOMC statement. In other words investors and traders are taking it as a dovish statement and the greenback may be pressured as a result.
From the Release: “Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
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.”
FOMC Maintains “Extended Period” Language on Ultra-Low Rates
Fundamental Updates \ Nick Nasad \ 2:24 PM EDT \ March 16th, 2010The Fed kept its language regarding keeping interest rates at their low levels for an “extended period” of time. That means rates should remain at their current levels for at least 6 months. Economic conditions continue to strengthen, pushed up by higher business spending and a moderate rise in household spending. Trouble areas in the economy include high unemployment, flat housing starts, and continued contraction in bank lending. All in all the statement lacked much in terms of surprise and following its release Fed-funds futures showed a 70% chance of a November rate hike when the odds were at 84% prior to the FOMC statement. In other words investors and traders are taking it as a dovish statement and the greenback may be pressured as a result.
Provided by: Federal Reserve
Official Release: Statement
From the Release: “Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
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.”