The Federal Open Market Committee (FOMC) has kept its target for US interest rates at between 0-25 basis points as the Federal Reserve reiterated its commitment to use new tools to fight the worsening economic downturn.
After slashing the Federal Funds Target Rate to an all-time low at its last meeting in December, the FOMC is regarded as having exhausted its most tried-and-tested means of stimulating the flagging US economy and encouraging financial institutions to resume lending to both commercial and individual borrowers.
The committee said that, since it last met, data suggests that the US economy has weakened further, with industrial production, housing starts and employment rates continuing to decline steeply, and drops in domestic spending and global demand. The FOMC "anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time".
With no further capacity to cut rates, the Federal Reserve will "employ all available tools to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level", the FOMC said in a statement.
Such measures to revive the economy at the expense of expanding the Fed's balance sheet have been termed "quantitative easing" by some analysts, the policy of using the resources of central banks to stimulate ailing markets directly, an approach that proved to be of mixed effectiveness in combating the economic slump in Japan during the first half of this decade.
"The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant," the FOMC stated.
Furthermore, the Committee said it would purchase Treasury securities if it thought it would improve conditions in private credit markets, while the Fed will push ahead with implementing the Term Asset-Backed Securities Loan Facility to extend credit to small businesses and individuals.
The first meeting of the FOMC under the Obama administration also saw the participation of William Dudley, a newcomer to the committee following his appointment as president of the Federal Reserve Bank of New York, following the Senate confirmation of his predecessor Timothy Geithner as US Treasury secretary.
Yesterday also saw the appointment of Daniel Tarullo as a member of the board of governors of the Federal Reserve. Following his Senate confirmation on January 27, Tarullo was nominated to an unexpired term ending in January 2022.
More on Structured Products
Many investors favour one approach over the other, belying their similar aims
Growth of renminbi assets ends Taiwan insurers' love affair with structured credit
State watchdogs issue warnings as insurers turn to proprietary index products
Securities Financing Transactions Regulation could conflict with Emir reporting rules
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.