The Federal Reserve decided to keep the Federal Funds rate unchanged at the meeting it concluded today, as expected. Below is the current Fed Statement along with the one from their September meeting in paragraph-by-paragraph format, with my translation and commentary interspersed. As the graph below shows, the market is expecting the Fed to remain on hold, with Fed Funds between 0 and 25 basis points for an extended period. The graph shows the expected outcomes for the January meeting (before today’s announcement) from the Cleveland Fed. The market set the odds of anything other than standing pat at either today’s meeting or the December meeting effectively at zero. Reading off the chart, it looks like about a 95% probability of no action in January as well. I doubt we will see the Fed raise rates before the third quarter of 2010. The Fed is ...

The Federal Reserve decided to keep the Fed Funds rate at its historically low level, and noted that growth was starting to pick up and there was very little threat of near-term inflation. The current statement and the one from the previous meeting (8/12) are presented below, along with my analysis of the statements and the differences between them. "Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, 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....

Contraction Slowing, Inflation Not ImmediateThe Fed's statement from this month's meeting is presented below, along with its previous statement from the April meeting and my interpretation and commentary interspersed."Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales."Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, ...

We highlight Fannie Mae (FNM) and Freddie Mac (FRE).Below we present both the most recent Federal Reserve statement and the previous one from its mid-March meeting along with my translation and interpretation interspersed between the paragraphs."Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower."Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing."Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions ...

 

The Federal Open Market Committee decided to maintain the target range for the federal funds rate between 0 and 0.25% during a closed door meeting on January 27th and 28th, with the review and determination by the Board of Governors of the advance and discount rates to be charged by Federal Reserve Banks. Voting for this 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.

Recent economic reports 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.  The Committee anticipates

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Two top U.S. Federal Reserve officials on Friday predicted a weak second half for the U.S. economy, warning that strong U.S. growth may not return until 2010. Atlanta Federal Reserve Bank President Dennis P. Lockhart and Chicago Fed Bank President Charles L. Evans both said the U.S. central bank is in no hurry to start raising rates while the American economy is sputtering badly because of an ongoing global financial crisis, a sagging housing market and inflationary pressures caused by a yearlong run-up in food-and-energy prices. Indeed, Lockhart even said he wouldn’t rule out actually cutting interest rates if economic circumstances warranted – a remarkable admission at a time when the economic crisis is juxtaposed over rising inflationary pressures, and when most Fed-watchers expect the central bank’s next move to be an increase in interest rates, Reuters reported. A ...