20091105 0944 Global Economic News.

The Federal Reserve kept its key interest rate at a record low range of 0% to 0.25% once again and left the FOMC statement largely unchanged. The decision came widely expected. The Fed reaffirmed its plan to keep interest rates low for an "extended period" in the face of still high unemployment and low inflation but expressed growing confidence that an economic recovery is at hand. The Fed scaled back one of its asset purchase programs. The Fed now will buy a total of US$175bn of agency debt, less than the US$200bn the Fed had previously said it would do. The Fed maintained plans to buy US$1.25tr of agency mortgage-backed securities, as they gradually slow the pace of purchases and anticipates completing all the purchases by March 2010. Some key Fed statements:

• On the economy- Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.
• On inflation risks- With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Fed expects that inflation will remain subdued for some time.
• On future rate changes- The 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.
  

(Federal Reserve, CNN Money, WSJ)
The Fed’s decision and tone of the statement came as no surprise. This reaffirms our view that the Fed funds rate will remain unchanged at record low levels at the final Fed meeting for the year (Dec 15-16) and 2010.