Federal Reserve, FOMC, Market Insight

Federal Reserve Confirms Economic Recovery with Caution

December 14, 2010 by · 1 Comment 

FOMC Statement Press Release Dec 2010 by James BarathAs the year comes to an end, the Federal Open Market Committee (FOMC) gathered for the 8th and final schedule meeting for 2010.

Since the last FOMC meeting in November the US economy has been providing mixed signals on the scope and pace of a jobless recovery. The biggest announcement from the November FOMC meeting was the launch of a second round of Quantitative Easing (QE2). Many questions have been circulating since November 3rd about the effectiveness QE2.

Why should home buyers and homeowners in Northwest Indiana even care about the FOMC meetings?

First of all, the FOMC meetings provides a bird’s eye view of what the Federal Reserve believes to be important factors impacting the overall economy.

Second and more importantly, the press release from the FOMC meetings provides guidance to the financial markets on how the Federal Reserve will accomplish their dual mandate to foster maximum employment and price stability.

According to FOMC Statement Press Release from today, the committee had this to say about the economy.

Positive economic factors:

  • Household spending is increasing at a moderate pace
  • Business spending on equipment and software is rising
  • Longer-term inflation expectations have remained stable
  • Underlying inflation have continued to trend downward

Negative economic factors:

  • Household spending…constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
  • Business spending…less rapidly than earlier, while investment…continues to be weak
  • Employers remain reluctant to add to payrolls
  • Housing sector continues to be depressed

Based on the Federal Reserves interpretation of the economy, the committee voted 10-1 in favor of:

  1. maintain the target range for the federal funds rate at 0 – 0.250% for an extended period
  2. maintain its existing policy of reinvesting principal payments from its securities holdings
  3. intends to purchase $600 billion of longer-term Treasurys by 2nd quarter 2011 ($75 billion per month)

The Federal Reserve reaffirmed it’s commitment to Quantitative Easing 2 and is prepared to see it through to the end. The FOMC also acknowledged that the economic recovery is continuing, but not at a pace sufficient to lower the unemployment rate.

What does all this really mean to home buyers and homeowners in Northwest Indiana?

The Federal Reserve is running out of options and tools to keep interest rates at historic lows as worldwide bond markets are becoming numb to the FOMC’s influence. Therefore, home buyers and homeowners in Northwest Indiana should take quick action to capitalize on low home loan rates before they end.

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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