The Federal Reserve decided to hold steady again today, with target rates at 0.00 to 0.25%, which was largely expected. They reiterated their expectation of keeping rates at these lower levels for the same “extended” period (mid-2013 at this point), as well as continuing the extension of overall average maturities in the portfolio (aka “Operation Twist,” announced in Sept.).
On a positive note, the committee acknowledged that economic growth had “strengthened somewhat” in the third quarter, as household and business spending has increased “at a faster pace” in recent months in contrast to prior comments and data from earlier in the year. On the more tempered side, investment related to housing remains depressed and the employment environment remains weak. The FOMC continues to expect moderate economic growth over coming quarters, but also acknowledges that “global financial markets” remain a concern on the downside. This language was unchanged from prior meetings.
Much of the commentary is what we expected. We anticipate that as the European situation resolves itself, risks to recession emanating from that crisis should abate, and could add to more of an overall positive tone from the FOMC as that “wildcard” is removed. As it stands, domestic data has improved from prior meetings, which is in line with numbers we’ve seen.