Fast market conditions are ruling the day post FOMC, with light selling hitting both treasuries and mortgage backs. Big picture sees the Fed on hold for “an extended period of time”. Bright spots point to the employment picture improving and hints of economic growth. This is basically the same as last month but some are trying to read the tea leaves for any sign of a change. Post release, the 10 year is nearly unchanged, losing all of this morning’s gain. MBS have cut their gains in half. Nothing huge, just movement that is not in our favor. Buckle the chin strap.
Release Date: December 16, 2009
For immediate release
Information received since the Federal Open Market Committee met in November suggests that economic
activity has continued to pick up and that the deterioration in the labor market is abating. The housing
sector has shown some signs of improvement over recent months. Household spending appears to be
expanding at a moderate rate, though it remains constrained by a weak labor market, modest income
growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment,
though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing
inventory stocks into better alignment with sales. Financial market conditions have become more
supportive of economic growth. Although economic activity is likely to remain weak for a time, the
Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary
stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to
higher levels of resource utilization in a context of price stability.
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation
expectations stable, the Committee expects that inflation will remain subdued for some 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 is in the process of purchasing $1.25 trillion of
agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth
transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that
these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to
evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic
outlook and conditions in financial markets.
Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February
1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009. These facilities include the
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper
Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal
Reserve will also be working with its central bank counterparties to close its temporary liquidity swap
arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction
Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-
Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial
mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral. The
Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice
Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart;
Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.