The Federal Reserve, acknowledging the economy has continued to deteriorate, signaled Wednesday that it will keep using unconventional tools to cushion the fallout, including keeping a key interest rate at a record low for quite "some time."
The Fed agreed—with one dissent—to keep the targeted range for the federal funds rate between zero and 0.25 percent. The funds rate is the interest banks charge each other on overnight loans.
Economists predict the Fed will leave rates at that range through the rest of this year.
"The economy has weakened futher," the Fed said. To provide support, it said it would keep rates at rock bottom levels for "some time."
Having taken the unprecedented step of slashing its key rate to record lows at its previous meeting in December, the central bank pledged anew to look to other unconventional ways to revive the economy.
Specifically, the Fed said it is now "prepared" to buy longer-term Treasury securities if the circumstances warrant such action.
"As expected, the study on buying longer-term Treasury paper is completed," said Ram Bhagavatula, managing director at Combinatorics Capital. "Now they will buy it if needed. But with all the programs in place to buy risky assets, I don't think it will be needed in the near-term."
Fed Chairman Ben Bernanke and his colleagues are battling a three-headed economic monster: crises in housing, credit and financial markets that—taken togheter—haven't been seen since the 1930s.
Despite the Fed's aggressive rate-cutting campaign, a string of bold Fed programs and a $700 billion financial bailout program run by the Treasury Department, credit and financial markets are still stressed and far from normal.
At its last meeting in mid-December, the U.S. central bank reduced its target for the benchmark overnight federal funds rate to zero to 0.25 percent, and said rates would likely stay unusually low for some time.
That surprise move to lower its target for the benchmark federal funds rate from one percent put the Fed in uncharted territory. Financial markets had expected the Fed to lower rates by no more than three-quarters of a point, to 0.25 percent.
In its statement at the time, the Fed underscored its commitment to use extraordinary measures, including using its balance sheet to support the credit markets. # Fed Moves to Help Distressed Homeowners
The Fed has flooded markets with dollars, more than doubling the size of its balance sheet to more than $2 trillion, and it may shed more light on how it plans to support broken down credit markets in its statement Wednesday. Investors are particularly keen to see whether the Fed signals a willingness to begin buying long-dated U.S. government debt.
SPX closing below the SPX 872 R (?) after trading to SPX 878. Trading volume is light -- it is probably because many are scared of all extreme bearish speculation. It is just a matter of time the extreme bearish sentiment becomes a contrarian. Daily price actions are getting ready to show positive trend on macd.
Markets intraday momentum has shown positive with the stimulus program helping to revive our economy. With oversold level and very negative market sentiment is also helping the last 4 days up-momentum market. After markets trading in a trading range for 2 weeks, we may see a strong finish for the week and positive Jan.
"Qs 30.31, SPY 86.97 and SPX 868.73 HOD is a last resistance before retracing to the recent top on Jan 6. Breaking above is signaling that markets could finish the month - January positive which $SOX is positive now. Because market actions today have broken above 2 weeks consolidation period, breaking above the current HOD resistance could carry fast momentum to upside retracing to 1/6/2009."
Trading above SPX 880 downtrend resistance is continuing to be positive for upside momentum to SPX 950 +/- retracing to 1/9/2009 943.85 high. We still have a chance to finish the Jan effect on a positive note.
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