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Economy Title: Fed Retains Pledge to Keep Rates Low for ‘Extended Period’ March 16 (Bloomberg) -- Federal Reserve officials retained their pledge to keep the main interest rate near zero for an “extended period” and confirmed that $1.25 trillion in purchases of mortgage-backed securities will end this month. “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,” the Federal Open Market Committee said in a statement today in Washington. Fed Chairman Ben S. Bernanke is trying to determine how long to hold down borrowing costs to strengthen the recovery from the worst slump since the 1930s and to reduce joblessness persisting near a 26-year high. At the same time, policy makers are developing tools to tighten credit and ensure $1.2 trillion in excess bank reserves doesn’t stoke inflation. “The Committee 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 FOMC statement said. The economy will probably grow by 2.8 percent in the first quarter of 2010, according to the median estimate of a Bloomberg News survey of economists this month, after expanding 5.9 percent in the fourth quarter of 2009. Retail sales unexpectedly climbed in February, consumer borrowing rose in January for the first time in a year and commercial mortgage-backed bond returns are accelerating. Meanwhile, the Fed’s preferred gauge of inflation, which excludes food and energy, has stayed tame. Purchases End Officials repeated that their program to buy $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt will be completed by the end of March. “Those purchases are nearing completion, and the remaining transactions will be executed by the end of this month,” the statement said. Thomas Hoenig, president of the Kansas City Fed, dissented for the second straight meeting and said “that continuing to express the expectation of exceptionally low levels of the federal funds rates for an extended period was no longer warranted because it could lead to the build up of financial imbalances,” the statement said. The Fed has kept the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent since December 2008. Policy makers began using the “extended period” language in March 2009 and have repeated it at each meeting since then. Job Losses Economic growth is helping to stanch job losses. Payroll declines have slowed to an average 27,000 a month from November through February, compared with an average 252,000 from July through October. The U.S. may add as many as 300,000 jobs this month, the most in four years, said David Greenlaw, chief fixed- income economist at Morgan Stanley in New York. The unemployment rate was unchanged at 9.7 percent in February. “Things are definitely getting better,” Jeffrey Immelt, chief executive officer of General Electric Co., said at a conference on March 11 in Washington. “The credit markets are much improved. Most indicators are firming or heading up.” “But there’s a long road ahead,” with high unemployment and “big structural issues” in the economy, said Immelt, who is also a member of the New York Fed board. Company Borrowing Borrowers raised a record $1.24 trillion in the U.S. corporate bond market last year, according to data compiled by Bloomberg. While down from that pace, issuance this year remains elevated, with $248.3 billion raised. The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 267 basis points, or 2.67 percentage points, from the peak during the credit crisis of 888 basis points in December 2008, according to Bank of America Merrill Lynch indexes. The narrower spread represents annual interest savings of about $60 million for every $1 billion of bonds sold. Inflation is showing little sign of taking off. The Fed’s preferred price index, which excludes food and energy costs, rose 1.4 percent in January from a year earlier, below the long- run range of 1.7 percent to 2 percent policy makers want for total inflation. “It’s still the case that the economy is weak, and you still have no evidence of a pickup in inflation or inflation expectations,” J. Alfred Broaddus, former president of the Richmond Fed, said before the rate announcement. “But then there is this evidence that the economy may be gaining additional speed.” Policy makers believe the risk of inflation is low, with some still worried about deflation. Inflation expectations have remained stable in recent months, even with the excess capacity in the economy. Readings on one year-ahead inflation expectations tracked by the Thomson Reuters University of Michigan Survey have averaged 2.7 percent for the past six months, compared with 2.8 percent for the prior six months. Officials may also be concerned about the falling cost of labor, said Marvin Goodfriend, a former research director at the Richmond Fed. Labor costs dropped at a 5.9 percent pace in the fourth quarter, according to a report earlier this month. “Today we cannot say we’re past the period of risk of deflation in unit labor costs,” said Goodfriend, now a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh. In recent months, the scheduled end this month to Fed purchases of mortgage debt has prompted little change in mortgage rates. The rate for 30-year fixed mortgages fell to 4.95 percent for the week ended March 11 from 4.97 percent, compared with a record low of 4.71 percent in December. Sales of previously owned U.S. homes unexpectedly declined in January for a second month, falling 7.2 percent to an annual pace of 5.05 million, the National Association of Realtors said Feb. 26. Housing starts in the U.S. fell in February as record snowfall in parts of the country hampered construction. Builders broke ground on 575,000 homes at an annual rate last month, down 5.9 percent from January’s revised 611,000 pace, Commerce Department figures showed today in Washington.
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#1. To: war (#0)
What horseshit. Pre-Clinton era CPI is running at 6%. That is reason alone to boost rates to 5 or 6% from 3.25%. That would give Americans incentive to save money and invest instead of "buy, buy, buy."
Huh? You taking lessons in cogence from e-type?
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