Wednesday, November 4, 2009

The Fed Holds Steady

The Lehmann Letter ©

The Federal Reserve’s Federal Open Market Committee (that sets the rate at which banks lend reserves to each other) met today and said:

“….economic activity has continued to pick up….. 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 support 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…. “

The Fed expects the economy to remain weak and inflation to remain moderate for the foreseeable future: So weak that the Fed anticipates “….exceptionally low levels of the federal funds rate for an extended period…. “

Summing up: Weak growth + low inflation.

© 2009 Michael B. Lehmann

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