March 16, 2010

Fed maintains ultra-low rate policy

As expected by the majority of market participants, the Federal Open Market Committee issued a statement maintaining the target range for the federal funds rate at 0 to 1/4%  for an extended period of 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. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

The complete FOMC statement is available here:

While this has been widely anticipated, the more important issue will be how the economy will fair when the remaining special liquidity facilities, most of which will end this month, are no longer in place.  Without the massive federal support, can mortgage rates and other commercial loans remain at current levels?

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