The FOMC announcement is out. Below is a quick recap...
14:14 21Sep10 RTRS-FED SAYS PREPARED TO PROVIDE ADDITIONAL ACCOMMODATION IF NEEDED SUPPORT ECONOMIC RECOVERY, TO RAISE INFLATION
14:14 21Sep10 RTRS-FED SAYS MEASURES OF UNDERLYING INFLATION ARE CURRENTLY AT LEVELS SOMEWHAT BELOW THOSE CONSISTENT WITH PRICE STABILITY
14:14 21Sep10 RTRS-FED SAYS INFLATION LIKELY TO REMAIN SUBDUED FOR SOME TIME BEFORE RISING TO LEVELS CONSISTENT WITH MANDATE
14:14 21Sep10 RTRS-FED REPEATS TO KEEP RATES EXCEPTIONALLY LOW FOR AN EXTENDED PERIOD, KEEPS FED FUNDS RATE IN ZERO TO 0.25 PCT RANGE
14:14 21Sep10 RTRS-FED SAYS PACE OF RECOVERY HAS SLOWED IN RECENT MONTHS, LIKELY TO BE MODEST IN NEAR TERM
14:14 21Sep10 RTRS-FED SAYS BUSINESS SPENDING ON EQUIPMENT AND SOFTWARE IS RISING, THOUGH LESS RAPIDLY AS EARLIER IN YEAR
14:14 21Sep10 RTRS-FED SAYS WILL MAINTAIN POLICY OF REINVESTING PRINCIPAL FROM SECURITIES HOLDINGS
14:14 21Sep10 RTRS-FED SAYS VOTE ON POLICY WAS 8-1 WITH HOENIG DISSENTING
14:14 21Sep10 RTRS-FED SAYS HOENIG CONTINUED TO BELIEVE PLEDGE TO KEEP INTEREST RATES EXCEPTIONALLY LOW FOR EXTENDED PERIOD NO LONGER WARRANTED
14:14 21Sep10 RTRS-FED SAYS HOENIG DID NOT BELIEVE REINVESTING PRINCIPAL IN SECURITIES NECESSARY TO SUPPORT FED POLICY
HERE is the statement:
"Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak.
Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.
Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandates to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent 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 for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.
The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A.. Duke; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.
Voting against the policy was Thomas M. Hoenig, who judged that the economy continues to recover at a moderate pace. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and will lead to future imbalances that undermine stable long-run growth. In addition, given economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from its security holdings was required to support the Committee's policy objectives."
Plain and Simple: the addition of the verbiage "prepared to provide additional accomodation" will create the impression that QE is not far off in the future as the pace of recovery has "slowed in recent months". Also note the Fed sees inflation as being below their long run target, this implies the Fed believes they are losing control of inflation, which indicates disinflation is a legitimate concern. This opens the door a little wide for QEvNEXT. THIS IS EVERYTHING THE BOND MARKET NEEDED TO RALLY! A lack of inflation. Higher likelihood of Fed debt buying. The long slow recovery is settling in. The markets continue to chase yield.
Initial Market Reaction...
The 10yr TSY note yield jumped from 2.657% up to 2.705% but has since moved back down to 2.68%.
The November FNCL 4.0 jumped from 102-18 down to 102-10 abut has since bounced back up to 102-15.
S&Ps initially sold off but have since rallied back to the session high print. Now bid at 1138.