Federal Reserve stays the course with rates
November 4, 2009 by admin
The FOMC today announced that there would be no changes to the Federal Funds or Federal Discount rates. This news was certainly expected by wall street and economists across the world who have been expecting the Fed to hold rate steady through early 2010 as the economy looks to recover. The majority of economist following today’s news were more interested in reading the Fed’s meeting minutes and full text release, rather than focusing simply on the interest rate decisions. The FOMC’s role in subsidizing the secondary mortgage markets appears very much in tact for the time being and is likely to be one of the key areas that the Fed focuses on in its attempts to exit out of a primary role of supporting the financial system. The Fed did notify the market that they would like purchase a smaller amount of agency debt for the balance of the year. Originally the Fed had promised to purchase up to two hundred and fifty billion dollars worth of mortgage securities, they are now projecting this figure to be less than two hundred billion, a signal that the supply of mortgage loans may have peaked earlier this year, despite historically low interest rates.
The Federal Reserve has a significant hurdle towards changing the present monetary policy. The lack of job creation this year has been very disappointing for the administration and the Federal Reserve. The improvement in the equity markets and uptick in GDP are certainly factors that could help bring the economy out of its tail spin, but this hope could be dashed quickly if the October jobs report due out this week disappoints the market. Most analysts are predicting that the non farm payroll report will be improved from the month of September, but has zero possibility of demonstrating job growth.
In addition to today’s FOMC release, the private sector ADP job report showed a net loss of jobs exceeding 200,000 for the month of October. There is a very good chance that this week’s job report could push the national unemployment rate above ten percent, a figure that underscores the total number of workers displaced due to the fact it only accounts for active job seekers. The struggle to create jobs is an area that has hit Main Street America very hard and will be an issue that draws more attention from the administration moving forward. Today’s economic news did little to inspire the equity markets which posted a modest gain for the day. The Federal Reserve cemented home the idea that the economy has posted an impressive recovery, but future growth will likely be slow and measured. This news echoes many experts who now believe the markets may have peaked for the year , and future earnings will have to rely more heavily on growth than cost reductions. Mortgage rates were relatively unchanged with the news, despite the yield on the ten year bond edging back up above 3.5% for the first time in the last thirty days.