FOMC Call: Low Rates & Weak Economy to Mid-2013

The markets were anticipating some additional accommodative commentary from the FOMC from its one-day meeting statement today.  The market has pushed back any chances of a rate hike out to 2013 before he meeting in light of the most recent correction that has take off almost 2,000 DJIA points in just over two weeks.

Stocks had been up over 200 points at mid-day and the 2:17 PM time stamp showed a DJIA up ‘only’ 128 points hovering around 10,940.

The FOMC has announced no change in interest rates in a 7 to 3 vote.  The discount rate has been left unchanged at 0.75%.  The “exceptionally Low for an extended period” remains, but the FOMC noted that this was out to at least mid-2013.  The Federal Reserve is maintaining its policy of reinvesting principal payments and will regularly review the size and composition of its asset holdings.  It noted that it is prepared to adjust securities holdings as appropriate.

As far as the economy, it is considerably slower than expected, housing is depressed, spending is flattening, and labor markets have deteriorated.  Temporary factors accounted for only some of the weakness but the Fed believes that business investment continues to expand some.  The longer-term inflation expectations remain stable with a somewhat slower pace of a recovery.  Downside risks for the economy have increased and the Fed did discuss a range of tools to promote recovery and is prepared to employ policies as needed.

What is sad about today is that nothing seems to work.  The new belief is that this weak economy is now another two years.  The DJIA originally popped, but the stock market briefly went into the red and now shares are up about 50 points.

Don’t you just love the new normal?

The complete statement from the FOMC is here.

Update at 2:37 PM EST: Our take is that the market whip-saw moves is taking out the wind of the market sails.  While asking for QE3 was unrealistic, some hoped for several issues.  Lowering the rate on reserves, more aggressive rollover repurchases, and several other ‘easing’ mechanisms were hoped for by many of the bulls.  The DJIA is now down close to 50 points.  The beatings must continue until morale improves!

JON C. OGG