Fed Announces MBS Purchase Extensionby Tim Manni
Minutes ago, the Federal Open Market Committee (FOMC) released a statement following their two-day meeting, which solidified most of, if not all, analysts’ expectations.
MBS/Debt Purchases Extended
Perhaps the biggest development was that the Fed announced that they will ease their purchases of mortgage-backed securities and agency debt by the end of the first quarter of 2010, not by year’s end as previously stated. Conforming rates should remain low for a while yet, but the Fed’s reduced demand might serve to nudge rates up. The decision to push their exit strategy back signals that private markets may not quite be ready to operate on their own by December.
Fed Funds Rate
As expected, the FOMC voted to keep the target for the Federal funds rate between 0 and .25%, since “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
There was no change in the Fed’s economic outlook — “activity is likely to remain weak for a time,” however, the committee continues to see several signs of stabilization or improvement in financial markets:
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…