What the Fed’s are Saying…


Recently I was reading about the Fed’s Open Market Committee meeting and I decided to highlight the important excerpts that give both insight into current and future Fed actions and most importantly will help in proactive business planning for all aspects of the housing industry.

“Conditions in financial markets had become somewhat more supportive of growth over the inter meeting period, in part reflecting perceptions of diminished risk of financial dislocations in Europe…”
“Participants agreed that credit conditions did not appear to be an important restraint on investment spending by larger firms that have access to the capital markets…”

“Some participants observed that small businesses continued to find credit hard to obtain. However, several participants noted recent survey evidence indicating that most small firms that requested credit were able to borrow, and that relatively few small firms thought that access to credit was their most important problem…”

“Weighing the available information, participants again expected the recovery to continue and to gather strength in 2011. Nonetheless, most saw the incoming data as indicating that the economy was operating farther below its potential than they had thought that the pace of recovery had slowed in recent months, and that growth would be more modest during the second half of 2010 than they had anticipated at the time of the Committee’s June meeting…”

“Policymakers generally saw the inflation outlook as little changed. They observed that a range of measures continued to indicate subdued underlying inflation and that growth in wages and compensation remained quite moderate…”

“Policymakers generally saw the inflation outlook as little changed. They observed that a range of measures continued to indicate subdued underlying inflation and that growth in wages and compensation remained quite moderate…”

“Participants viewed the risk of deflation as quite small, but a number judged that the risk of further disinflation had increased somewhat despite the stability of longer-run inflation expectations…”
“Committee members agreed that it would be appropriate to maintain the target range of 0 to 1/4 percent for the federal funds rate…”

“…Members generally judged that the economic outlook had softened somewhat more than they had anticipated, particularly for the near term, and some saw increased downside risks to the outlook for both growth and inflation…”

“…The Committee discussed the implications for financial conditions and the economic outlook of continuing its policy of not reinvesting principal repayments received on MBS or maturing agency debt…”
“All but one member concluded that it would be appropriate to begin reinvesting principal received from agency debt and MBS held in the SOMA by purchasing longer-term Treasury securities in order to keep constant the face value of securities held in the SOMA and thus avoid the upward pressure on longer-term interest rates that might result if those holdings were allowed to decline…”

“Several members emphasized…the Committee would need to consider steps it could take to provide additional policy stimulus if the outlook were to weaken appreciably further…”

Bottom Line: The Fed’s Open Market Committee acknowledged that the pace of the economic expansion has slowed and that still ample resource availability increased the likelihood of further disinflation. However, few members were concerned with the possibility of either a “double-dip” recession or outright deflation. In order to deal with this situation, the Committee kept its target federal funds rate at 0% to 0.25% for an “extended period.”

And thank you for making me Your Orange County Real Estate Connection.     

www.MichaelCarusoRealEstate.com

Best regards,

Michael Caruso, Broker ABR ABRM CRB CRS GREEN GRI

2007 President, Orange County Association of Realtors (949) 753-7900

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