Federal Reserve Maintains Zero Percent Interest Rates For Extended Period

April 29, 2010 by · Leave a Comment
Filed under: Economic News 

With no surprise, the Fed after their two day interest rate policy meeting continues to maintain short term interest rates at near zero and they maintained the “for an extended period” statement in there.  At this point they have not given the market any clue that they are starting an interest rate hike cycle.

This continues to tell us that even with the large rally in the equity markets, we are not out of the neck of the woods and things are still holding together by a string.  The New York Times article discusses the same important topic I have mentioned about the massive balance-sheet the Federal Reserve has at the moment that is filled with many mortgage related securities and so-called toxic assets.

With the position our banking system is in, they are in no place to purchase back the over $1 trillion dollars in assets they are holding on their books.  Until we can deal with those assets in a transparent manner, we can not say that we have a real recovery in our financial system.  If they aren’t dealt with then they have essentially been off-loaded to the public and that would be a tragedy having to deal with the inflation associated with that because the banks would have all that extra cash to lend with.

New York Times – The Federal Reserve on Wednesday kept short-term interest rates near zero and maintained, as it has for nearly a year, that rates would stay at that level for “an extended period.”

Despite intense market speculation, the central bank disclosed nothing about the fate of the $2.3 trillion balance sheet it accumulated as it acquired mortgage-backed securities in an effort to prop up the housing market.

The Fed reiterated its expectation that the benchmark fed funds rate would remain “exceptionally low,” as it has since December 2008, for some time, despite growing concerns among policy makers that the stance was too constraining.


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