Quote:
Originally Posted by Antonio
(Post 15204415)
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There was an FOMC meeting announcement at 2:15 eastern..
"The Fed announced that its target is now a range ? of 0.0 percent to 0.25 percent. This is down from the previous fed funds target rate of 1.0 percent. Basically, the Fed is admitting that it cannot keep short rates much above zero with the massive amounts of liquidity being injected into markets and expected to remain in credit markets. The Fed lowered the discount rate by 75 basis points from 1.25 percent to 0.50 percent.
The Fed eased further due to the view that the economy is worsening while inflation pressures have eased.
"Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further."
Without using the term, the Fed is shifting focus to "quantitative easing? in which liquidity is injected into credit markets without lowering interest rates further. The Fed is planning to buy a lot of assets to improve liquidity.
"As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant."
But the Fed is looking at implementing even more innovative ways of improving the credit markets ? some of which are already being set up to start operating early in 2009.
"The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity."
The bottom line is that the Fed sees the economy in a recession that is worse than believed even a couple of months ago. With the drop in the target to a range of zero and just above, the Fed appears to be implying that rates are going to be low for some time. Stocks rallied on the news as did Treasuries." - Econoday Report.
