Fed holds rate steady

Aug.12, 2009 2:50 p.m.


The U.S. Federal Reserve open market committee very wisely has decided to keep US interest rates at their current very low level targeting a federal funds rate of between 0 and 0.25 %. It sees the economy leveling out from its previous steep decline. stabilization is returning but higher unemployment, tight credit, and slow growth in wages and income continue to constrain household spending.The FOMC sees little risk of inflation in the current circumstances and for some time to come. The Fed states that it will continue its program of acquiring mortgage and treasury debt as part of its quantitative easing strategy which it intends to gradually end by the end of October.Stock markets which had been up all day prior to the announcement continued to be bullish.

At 2:48 in the afternoon the Dow was up 103.9 points down from its earlier pre announcement high of 129.
At 3:10 the Dow had moved up to 9414 a gain of 170 points and the S & P 500 by 16.25 points to 1010.60

The statement follows courtesy of the Fed.



Release Date: August 12, 2009

For immediate release
Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of 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 but are 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, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. 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 are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

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; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.