Bernanke Keeping Status Quo on Rates... For Now

Ben Bernanke may be Time Magazine’s person of the year.  But today Bernanke was listed as the market watchdog of the day because the FOMC voted to keep rates steady at the same 0.00% to 0.25% target that has been in effect for what may be too long.  There was no expected change to this effective-zero rate, but what everyone was looking for was a commentary on “WHEN” that policy might end and what measures were being taken to drain some of the other liquidity measures.  The term “extended period” was kept on this report as far as exceptionally low Fed Funds rates, but there was no change in rates by a 10-0 vote.

Noted was that economic activity has continued to increase and the deterioration in labor markets is abating.  The Fed does expect economic activity to remain weak for some time and that economic slack would continue to dampen pressure on costs (i.e., inflation).  Longer-term inflation expectations remain stable.

On the liquidity measure, most special liquidity facilities will expire in February 2010. The Fed is expected to still purchase $1.25 billion in agency mortgage-backed securities and about $175 million in agency debt.

If you are a true Fed-head, you can see the FOMC’s full statement here.

JON C. OGG