FOMC Wants to Keep Interest Rates Low
by Tim Manni
The Federal Open Market Committee (FOMC) will conclude its two-day meeting this afternoon. Immediately following the meeting the committee will release a short but telling statement which will summarize the Fed’s intended actions, decisions, and opinions in terms of the economy and our path to recovery.
First off, the overall consensus is that the Fed wants to keep interest rates low. The target for the Fed funds rate is widely expected to remain between 0-0.25%. Mortgage rates are also expected to remain in the range they have fluctuated in over the past several months. Joshua Zumbrun of Forbes.com reports that the Fed has already purchased $455 billion of mortgage-backed securities (MBS), and stands to purchase another $795 billion if they plan on sticking to their original goal of buying up $1.25 trillion. In six months the Fed has purchased an average of over $17 billion in MBS a week. At that pace the program should run at least through the end of the year:
Between the Treasuries, mortgage-backed securities and [Fannie and Freddie] debt, the Federal Reserve has already committed to $1.75 trillion in purchases, but has yet to actually complete half that volume. Thus, observers see little reason for the Fed to try to goose markets by increasing the targets even further. Decreasing purchases would be equivalent to increasing rates, something the Fed is unlikely to do in the face of economic weakness.
Of all the government’s recession-fighting strategies, the Fed’s have been regarded as the most effective. While the programs have certainly served a significant purpose, analysts continue to wait for the next piece of the puzzle: an exit strategy.
The more optimistic you are about our economic recovery, the more you are interested about hearing how the Fed plans to ease off their spending spree. Experts like HSH’s VP Keith Gumbinger believe the Fed owes us, at least, an explanation on how they plan on withdrawing themselves from the market.
“Right now, we don’t need specifics, just that they are considering how to extricate themselves from the various markets that they are supporting,” said Gumbinger.
The Fed’s statement following the FOMC meetings is short and sometimes vague — the minutes which are released two weeks after the meeting’s conclusion tell a more detailed story. We predict that today’s statement will emphasize the importance of the Fed’s ongoing initiatives without announcing any new ones. They will likely note that while the economy has stopped worsening, it hasn’t yet shown strong signs of improving either.
Unemployment and inflation are also likely to be addressed, but we’ll have to wait and see if the Fed thinks we’re ready to end this downturn on our own.
