Federal Open Market Committee Downgrades Recovery

Federal Reserve Board will sell $400 billion of short term Treasury securities and buy the same amount of longer-term Treasury securities to lower long term rates without increasing the size of its portfolio.

The Federal Reserve Board downgraded the assessment of the economic recovery, dropping references to temporary factors undermining a more robust recovery. It also upgraded the downside risks to the outlook, referring to strains in global financial markets.

This set the stage for announcing Maturity Extension Program and Reinvestment Policy, an unconventional policy to put downward pressure on longer-term interest rates to provide additional stimulus to support the economic recovery.

The fact that rates are already at historic lows and the recovery remains weak suggests that rates may not be the issue. Tight lending standards and low levels of business and consumer confidence are more likely factors keeping the supply of and demand for loans low despite the low rates. That being the case we see only marginal impacts from this latest move by Federal Reserve Board.

- Courtesy of NAHB