Federal Reserve Leaves Rates Unchanged and Keeps Debt Buying Plan

The Federal Reserve's Federal Open Market Committee today voted to keep the target range for the federal funds rate at 0 to 1/4%. In addition, the Fed said it would continue programs to keep mortgage rates low.

Here's my parsing of the statement. First paragraph:

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. 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 support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

Everything we've done has stopped the bad from getting worse. Financial markets and the housing sector have improved but people are still losing their jobs and companies are cutting their spending. Still, all of our actions will eventually have an impact and some day (maybe ten years out) we'll be back to where we were in 2007.

Second paragraph:

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.

All of you out there buying gold in anticipation of an inflation boom are barking up the wrong tree. There are so many closed factories and extra production capacity that it will take years to get them running again. Until then, we are a world awash in cars, refrigirators, housing products, and other goods. With so much supply and potential supply it will be impossible to raise prices. If anything, look for more price cuts until more comanies shrink down or go out of business.

Third paragraph:

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. 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 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 will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. 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. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

We're going to continue to keep rates at historic lows. Savers are going to suffer and borrowers who have good credit will have a field day. We don't want you to keep money in savings accounts, cds, bonds, etc. We want you to spend the cash or invest it in the stock market to get the economy going again.

Starting in October we will start to slow some of these programs, if the economy looks like it is improving enough. Right now, the Dow at 8,700 isn't enough.

So, there you go. My intepretation of Fed-speak. Don't agree. Let me know below.