...and no real surprises. As expected, they left rates where they were, even though economic activity has picked up following its severe downturn. The reasons they gave: 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. Although economic activity is likely to remain weak for a while, the committee anticipates that "policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability." In normal English, this means that they will work to ease the economic situation during what promises to be a slow end to the recession.
The Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability, and plans to keep the target range for the federal funds rate at 0 to 1/4 percent for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Feds will also purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. It will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of next year.
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