The Federal Open Market Committee meeting in unusual one-day session left the Fed Funds target rate unchanged at 0.0%-0.25% as had been widely expected.  Also unaltered was the characterization of the economy as likely to warrant exceptionally low levels of the federal funds rate for an extended period. 

The descriptive sections on economic activity, household and business spending and inflation are unchanged from the January 27 statement. A weak labor market has become high employment.  Credit remains tight, investment in structures was still contracting in January and now nonresidential structures are declining and housing starts have been flat at a depressed level.

The $1.25 trillion of agency mortgage backed securities and $175 billion of agency debt purchases will end on time at the end of the month.  The committee has dropped the phrase will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in the financial markets, and replaced it with will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

The mild market speculation that the committee might add another 25 basis points to the discount rate was disappointed.  The economic  trajectory portrayed in the six weeks since the last FOMC statement is essentially unchanged, though its aim is ever so slightly higher.  The Fed will not be hurried by any considerations other than the ones it has chosen. There is profound predictability in the Federal Reserve views and prescriptions for the US economy.

Joseph Trevisani

Chief Market Analyst, FX Solutions