January 27, 2010 FOMC Statement

FOMC statement

FOMC statement

For immediate release

Information received since the Federal Open Market Committee met in November December suggests that economic activity has continued to pick up strengthen and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months. Household spending appears to be is expanding at a moderate rate, though it rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Businesses are still cutting back Business spending on fixed investment, though at a slower pace, equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls; they continue to make progress in bringing payrolls. Firms have brought inventory stocks into better alignment with sales. Financial While bank lending continues to contract, financial market conditions have become more remain supportive of economic growth. Although the pace of economic activity recovery is likely to remain weak be moderate for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely continuing to continue to dampen restrain cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. quarter. 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.

In light of ongoing improvements in the improved functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities Reserve will expire on February 1, 2010, consistent with be closing the Federal Reserve’s announcement of June 25, 2009. These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal Reserve will also be working with its central bank counterparties to close its Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements by between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve expects that amounts provided under is in the process of winding down its Term Auction Facility Facility: $50 billion in 28-day credit will continue to be scaled back offered on February 8 and $25 billion in early 2010. 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, 30 for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh; Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that economic and Janet L. Yellen. financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.

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