FOMC Maintains Expansionary Policy. No Surprises in Statement

by devteam June 26th, 2009 | Share

No major surprises in the Federal Reserve’s policy announcement today. The FOMC said the pace of economic contraction is slowing and should gradually resume to sustainable levels. 

They gave no sign of tightening policy in the near future, vowing to “employ all available tools” and keeping the Fed Funds rate rate at “exceptionally low levels . . . for an extended period.” The FOMC also said it would purchase $1.25 trillion of mortgage-backed securities this year.

Key Statements on Outlook

  • Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. 
  • Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales.
  • The Committee “expects that inflation will remain subdued for some time.”

Key Statements on Policy:

  •  The Fed “will employ all available tools to promote economic recovery and to preserve price stability.” 
  •  The Committee “continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” 
  •  The Fed “will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year.”
  •  The Fed “will buy up to $300 billion of Treasury securities by autumn.”
  •  The Fed “will make adjustments to its credit and liquidity programs as warranted.”

Thernonly thing that may disappoint some is that the Fed didn't outline any sort ofrnexit strategy. Many investors have been concerned that the Fed will eitherrntighten policy too early and cause a replay of the policy mistakes in thern1930s, while others are concerned the Fed will keep rates too low for too long,rnwhich critics say could cause another bubble or lead to hyper inflation.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of is prohibited.

About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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