Fed Says Recovery Could Start Later in Year — Maybe
FOMC statement intensifies its negative view of the economy both in the U.S. and around the world.
Bryce Knorr
Published: Jan 28, 2009
The Federal Reserve today, as expected, kept its key interest rate unchanged near zero, signaling economic recovery might not begin until later in 2009 — if then.
The central bank's Federal Open Market Committee (FOMC) said "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."
The FOMC added language to its policy statement intensifying its negative view of the economy both in the U.S. and around the world: "The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant."
"In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term."
The Fed kept its target for Federal Funds in a range between zero and one-quarter of a percent, effectively limiting any further cut in rates as a monetary policy tool to stimulate the economy. Instead, the Fed outlined steps it would take to support financial markets and the economy by stimulating the supply of money. Those include buying up mortgage-backed securities and federal agency debt. However, the central bank stopped short of actually saying it would purchase Treasury securities, as some experts have recommended, which caused one FOMC member to dissent from the action.
Buying long-term government bonds would increase their price, effectively lowering interest rates, especially on mortgages, including farmland loans. Prices for 30-year bonds rallied earlier this week in hopes the Fed would step in, but broke following the announcement. Bond prices and interest rates move in opposite directions.
The stock market rallied into the announcement, and was holding on to most of its grains afterward.
Follow this link to the complete Fed announcement.
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