Fed leaves rates unchanged, see’s market improvement
August 12, 2009 by admin
The FOMC today announced that the Fed Funds rate and Fed Discount rate would be left at their current levels (0% & .25%), keep rates at historic low levels. The FOMC news release today was in line with most experts predictions that the Fed would be leaving rates at historic low levels for the near term as they try to navigate the credit markets and stabilize the overall economy.
The Fed was forced to dramatically lower both the Fed Discount Rate and Fed Funds Rate to historic low levels in 2008 as they attempted to stabilize the global credit markets and restore lending. The FOMC has been aggressively working with the government to help to try jump start lending, which ground to a halt in the fourth quarter of 2008 as lenders reacted to the failures of Bear Stearns, Lehman Brothers and AIG.
The FOMC has also moved in supporting the secondary treasury and mortgage security market. Last December, the Fed announced they would begin to purchase mortgage backed loan securities in the secondary marketplace. This move, a direct reaction to the lack of liquidity in the secondary bond market, helped to drop mortgage rates to historic low levels. In March of 2009, the Fed reiterated its plan to purchase additional mortgage backed bonds, helping to keep mortgage rates stabilized and jump start the housing markets.
Most experts anticipated the Fed would keep rates at their current levels, but were eager to learn of the Fed’s other market plans and analysis. The key to today’s news was not the Fed’s decision to leave rates unchanged, but their broader views on the health of the economy and their statements regarding future growth, the treasury markets and inflation. The Fed does not believe that inflation will be an issue in the near term, excluding the rapid jump of oil prices from March of this year, energy prices have been relatively flat over the last sixty days. The bond markets will be closely watched as investors try to gauge the markets reaction to the Fed’s decision to begin easing from its support of this marketplace. Yields on the ten year bond have ranged between 3.3% and 3.8% for the better part of the last sixty days. The yield on the ten year bond was at 3.75% following the Fed’s decision regarding interest rates. In June, concerns over the growing amount of debt the government was accumulating led to a spike with yields in the bond market, sending the ten year bond over 4% for the first time this year. The increase in bonds, carried over to the mortgage market, where fixed rate home loans immediately jumped up to the low six percent range. Interest rates, following the easing of bond prices, have since dropped to their current levels (5.5% nationally), but could be under pressure again if the bond market begins to demand higher yields.
The Fed will be shifting out of the Treasury purchases in October, but there is little reason to expect a change to key interest rates in 2009. The overall economy faces many challenges, and the Fed will likely focus on increasing rates in the first or second quarter of 2008, only if the job market has turned the corner.
Comments
One Response to “Fed leaves rates unchanged, see’s market improvement”
Hi!
I came across your blog (http://www.bestratesource.com/) while I was going through some finance blogs. You have shared with us very valuable information, I must say..
Being impressed with your blog content, I would like to place your blog link in my finance related website/blog. If you allow me to do so and give me an opportunity to show my blog/website to you for link exchange purpose, then kindly contact me at: dorcia.wellington[at]gmail.com.
Regards,
Dorcia Wellington