Fed Leaves Rates Unchanged
As expected, the Federal Reserve Board made no change in the fed funds rate. While there was much disagreement about what the statement would say, in general it
contained the minimum number of surprises.
One item of note in the Fed’s announcement was the extension of the end date for their $1.25 trillion program to purchase mortgage backed securities. The program, which was moved from the end of this year to the end of the first quarter of next year, has been credited with keeping credit available and the current low rate environment. To minimize disruptions in the credit markets, the level of weekly purchases will be gradually scaled back.
Offering its most optimistic view on the economy since the recession began, Fed officials believe that slack in the economy will keep inflation low. The outlook on inflation is good news for interest rates. Over the longer-term, however, the decrease in demand from the Fed might move mortgage rates higher, and it might lead to higher daily volatility.
