Federal Reserve on Interest Rates, Treasuries, and Unemployment
Federal Reserve policymakers ended their two-day meeting of the Federal Open Markets Committee (FOMC) and issued a statement in Washington. It has decided to keep its benchmark interest rates unchanged between 0% and 0.25%, slow down its $300-billion U.S. Treasuries program, and said that while "economic activity is likely to remain weak for a time," it had begun to "level off."
"They see the worst with the economy is behind us but they don't want to jump the gun and pull back quickly," said Craig Thomas, PNC Financial's senior economist. "But they no longer have to be as aggressive with quantitative easing, which I think is a positive."
The US interest rates were as high as 5.25% back in September 2007, then the rates were cut to the current level of between 0 to 0.25% in December 2008, and have remained ever since.
The central bank added that the current low levels of interest rates will likely continue "for an extended period" to aid the continuing recovery.
The US unemployment rate fell to 9.4% in July with 247,000 job cuts, doing far better than what analysts had expected. Although job losses, along with sluggish income growth, lower housing wealth and tight credit, still put pressure on household spending, we are beginning to see glimpse of hope.
Other recent official figures showed that US consumer spending had risen in June for a second successive month, while worker productivity had increased at its fastest annual pace for nearly six years in the second quarter of 2009.
On June 24, the Fed announced that it would buy up to $300 billion of long-term U.S. Treasuries "by autumn." Two months later, the Fed said in the report that it will "gradually slow the pace of the transactions and anticipates the full amount will be purchased by November," a month later than previously stated.
The Federal Reserve did not alter its plan to buy up to US $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, a key part of its efforts to improve conditions in private credit markets.