Fast market conditions are ruling the day post FOMC, with light selling hitting both treasuries and mortgage backs

Fast market conditions are ruling the day post FOMC, with light selling hitting both treasuries and mortgage backs.  Big picture sees the Fed on hold for “an extended period of time”.  Bright spots point to the employment picture improving and hints of economic growth.  This is basically the same as last month but some are trying to read the tea leaves for any sign of a change.  Post release, the 10 year is nearly unchanged, losing all of this morning’s gain.  MBS have cut their gains in half.  Nothing huge, just movement that is not in our favor.  Buckle the chin strap.

Release Date: December 16, 2009

For immediate release

Information received since the Federal Open Market Committee met in November suggests that economic

activity has continued to pick up 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

expanding at a moderate rate, though it remains constrained by a weak labor market, modest income

growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment,

though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing

inventory stocks into better alignment with sales. Financial market conditions have become more

supportive of economic growth. Although economic activity is likely to remain weak 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 to continue to dampen cost pressures and with longer-term inflation

expectations stable, the Committee expects that inflation will remain 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. 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.