All the smarty pants who make up the Federal Reserve met today to once again discuss the state of the economy and determine the action needed by them to aid a struggling American economy. One of the main things they do is determine what the Fed funds rate will be. The Fed funds rate is the rate at which banks lend to each other and is one way the Fed can regulate the supply of money to the US economy.
The following is an official press release from the Fed regarding its decision today, with a translation (for the rest of us) mixed in for all the financial jargon by Bob Walters, Chief Economist for Quicken Loans. Obviously, our version is in bold. Enjoy!
Release Date: April 29, 2009
For immediate release
Now
Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
The Fed received super secret, on the low-down, information that the economy is contracting. How do they figure this stuff out?!
The Fed also points out that the consumer continued to spend (you can’t hold a shopper down!), but that businesses have cut back significantly.
Lastly, they mention that all the money they are pumping into the economy ishelping and should continue to help as time goes on.
In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.
They say here that because the economy isn’t doing well (they call it “economic slack”), inflation (prices) will stay low.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve 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. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of financial and economic developments.
This is the “kitchen sink” paragraph. They say here that they will do everything in their power to pull the economy out of a tailspin. Stuff like:
- Taking short term rates to 0% (yay! Free money!)
- Spending $1.25 trillion to purchase mortgages to keep today’s mortgage rates low
- Buy $300 billion of Treasury securities (kind of a neat trick to buy debt from yourself…)
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