The Federal Open Market Committee showed some optimism in its latest statement accompanying its January rate decision, highlighted by the fact it expects a gradual recovery in the U.S. economy by year end.
"The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant," read this month's statement. In December, the FOMC made no such mention of a recovery on the horizon.
The FOMC also acknowledged that some of its policies of "quantitative easing" have been successful, by saying, "Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight."
Previous FOMC statements have been more downbeat, citing merely that, "Financial markets remain quite strained and credit conditions tight."
The Fed also stepped up its rhetoric on the possibility of buying U.S Treasuries, saying that "The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets."
This statement is more bold compared to last month's, as it said the Committee is "evaluating the potential benefits of purchasing longer-term Treasury securities."
In fact, Richmond Fed President Jeffrey Lacker was the only member who voted in favour of the Fed beginning to buy Treasuries immediately.
Market reaction to the statement was mixed with equities initially spiking higher before retracing some of the day's gains. The S&P 500 picked up 6 points to reach an intraday high of 877.86 before pulling back to 870.
By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2009