Information received since the Federal Open Market Committee met
in November suggests that economic activity has continued to pick
up and that the deterioration in the labor market is abating. The
housing sector has shown some signs of improvement over recent
months. Household spending appears to be expanding at a moderate
rate, though it remains constrained by a weak labor market, modest
income growth, lower housing wealth, and tight credit. Businesses
are still cutting back on fixed investment, though at a slower
pace, and remain reluctant to add to payrolls; they continue to
make progress in bringing inventory stocks into better alignment
with sales. Financial market conditions have become more supportive
of economic growth. 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 contribute to a strengthening of
economic growth and a gradual return to higher levels of resource
utilization in a context of price stability.
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.
The Committee will maintain the target range for the federal
funds rate at 0 to 0.25% and continues to 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. To provide support to mortgage lending and housing
markets and to improve overall conditions in private credit
markets, the Federal Reserve is in the process of purchasing $1.25
trillion of agency mortgage-backed securities and about $175
billion of agency debt. In order to promote a smooth transition in
markets, the Committee is gradually slowing the pace of these
purchases, and it anticipates that these transactions will be
executed by the end of the first quarter of 2010. 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.
In light of ongoing improvements in the functioning of financial
markets, the Committee and the Board of Governors anticipate that
most of the Federal Reserve's special liquidity facilities will
expire on February 1, 2010, consistent with the Federal Reserve's
announcement of June 25, 2009.