As expected, the Federal Reserve announced that it would keep its target interest rate at zero to 0.25 percent. What traders seized on was the statement by the Fed that rates would remain low for "an extended period" because "inflation is likely to be subdued for some time." The Fed also added "economic activity has continued to strengthen and that the deterioration in the labor market is abating."
In addition to its interest rate announcement, the Fed said that it would end several programs that purchased securities on the open market. Many had wondered when the Fed would end its quantitative easing programs, and it's clear that the answer is soon. Four of the programs will end on February 1, and another one will be wound down with a final auction taking place on March 8. In a cautionary note, however, the Fed noted that it "is prepared to modify these plans if necessary to support financial stability and economic growth."
There was one dissent among the votes. The head of the Kansas City Fed, Thomas Hoenig, said that "economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted."
An executive at Nationwide Insurance in Columbus, Ohio said the actions and comments by the Fed show that it believes the economy "is on the mend." He added that the dissent by Hoenig was due to Hoenig's view that the economy is entering "a recovery that's picking up speed" and that the Fed will have to act to increase interest rates "faster than the board in Washington thinks."
Another change in the Fed's statement showed that it there is increasing optimism about the economy among its members. Previously, the Fed had said that the economy is "likely to remain weak for a time." The language, which had been in place since April 2009, was changed to a statement that "the pace of economic recovery is likely to moderate for some time."
Stocks, which had been down for most of the day, rallied on the Fed's more optimistic assessment of the economy. The Dow rose by 0.4 percent to 10,236. The S&P 500 was up by 0.5 percent to 1,098. And the Nasdaq climbed by 0.8 percent to 2,221. All of these indices were down before the Fed's announcement, with the Dow off by 0.4 percent before the annoucement.
The more upbeat assessment of the economy by the Fed is good news. Wells Fargo Advisors in St. Louis said that "the market will like this." They added that while the Fed is "comfortable with how the economy is progressing, even though they didn't come right out and say that."
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In addition to its interest rate announcement, the Fed said that it would end several programs that purchased securities on the open market. Many had wondered when the Fed would end its quantitative easing programs, and it's clear that the answer is soon. Four of the programs will end on February 1, and another one will be wound down with a final auction taking place on March 8. In a cautionary note, however, the Fed noted that it "is prepared to modify these plans if necessary to support financial stability and economic growth."
There was one dissent among the votes. The head of the Kansas City Fed, Thomas Hoenig, said that "economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted."
An executive at Nationwide Insurance in Columbus, Ohio said the actions and comments by the Fed show that it believes the economy "is on the mend." He added that the dissent by Hoenig was due to Hoenig's view that the economy is entering "a recovery that's picking up speed" and that the Fed will have to act to increase interest rates "faster than the board in Washington thinks."
Another change in the Fed's statement showed that it there is increasing optimism about the economy among its members. Previously, the Fed had said that the economy is "likely to remain weak for a time." The language, which had been in place since April 2009, was changed to a statement that "the pace of economic recovery is likely to moderate for some time."
Stocks, which had been down for most of the day, rallied on the Fed's more optimistic assessment of the economy. The Dow rose by 0.4 percent to 10,236. The S&P 500 was up by 0.5 percent to 1,098. And the Nasdaq climbed by 0.8 percent to 2,221. All of these indices were down before the Fed's announcement, with the Dow off by 0.4 percent before the annoucement.
The more upbeat assessment of the economy by the Fed is good news. Wells Fargo Advisors in St. Louis said that "the market will like this." They added that while the Fed is "comfortable with how the economy is progressing, even though they didn't come right out and say that."
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