The Fed did not change its rates. It said the economy is still contracting but at a slower pace. Unfortunately, the Fed sounds like it does not expect inflation, with which we disagree. Another way to look at this is that the Fed does not expect economic recovery anytime soon (likely not even by Q4 as all "green shooters" expect), therefore it does not see a threat of inflation. We believe that without any "exit" strategies, the Fed will have a tough time addressing inflation which can pop up without any warnings. We think that just re-stocking inventories, which many companies may do in anticipation of a recovery, could ignite inflation, or would put a pressure on earnings as producers will not be able to pass the higher costs to consumers and would absorb those costs. The Fed disappointed, in our opinion.
- Fed funds rate target range remained at 0.00% - 0.25% because it "continues to anticipate that economic conditions are likely to warrant" those levels for "an extended period."
- It was positive regarding the financial markets.
- However, it remained negative on consumption, citing unemployment, declining wealth and tight credit as reasons why.
- The Fed "expects that inflation will remain subdued for some time."
- The Fed also did not change its plans to buy $1.25 trillion of mortgage backed securities. It appears that the Fed anticipates further devaluation of those so-called assets later this year, making them more attractive to purchase.
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