MercoPress. South Atlantic News Agency

Fed confirms most special liquidity facilities to expire by February 2010

Inflation is expected “to remain subdued for some time”

The Federal Reserve has decided to keep US interest rates on hold at between 0% and 0.25%, --as had been widely expected--, and anticipated that most of the special liquidity facilities will expire on February 1, 2010.

Following the Wednesday meeting, the Federal Open Market Committee said that information suggests that US economic activity continues to pick up, the deterioration of the labour market is abating and the housing sector and household spending appears to be expanding at a moderate rate.

“With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, FOMC expects that inflation will remain subdued for some time”.

Therefore FOMC 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”.

However 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 USD of agency mortgage-backed securities and about 175 billion USD of agency debt.

But in order to promote a smooth transition in markets, “FOMC is gradually slowing the pace of these purchases, and anticipates that these transactions will be executed by the end of the first quarter of 2010”.

Regarding the functioning of financial markets FOMC anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010. These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility.

The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral.

The latest data released this week indicates that inflation in November rose by 0.4%

Separate official US figures on Wednesday indicate that the US economic recovery remains on track. The Commerce Department said the current account deficit rose 10.3% to 108 billion USD between July and September, as demand for overseas goods among US consumers increased.

Meanwhile, new home construction for November grew by 8.9% to an annual rate of 574,000 units.

The most recent official figures showed that the US economy grew at an annual pace of 2.8% during the third quarter, down from an initial estimate of a 3.5% expansion.