Editor's note: The Federal Open Market Committee left the fed funds rate unchanged at a range of zero to 0.25% as it concluded its two-day meeting Wednesday. Real Money contributors sound off on what this decision and the much-scrutinized accompanying statement means for the markets.
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Jim Cramer starting things off:
2:18 p.m. EST No change, but lots of new verbiage to parse. Economic activity picked up -- housing better, employment better, household spending better ... still tight credit...
Howard Simons was underwhelmed but looked ahead to an interesting 2010:
Not Worth Waiting For
2:23 p.m. EST It would be nice to know what businesses outside of a few banks and other financials benefit from these ultra-low interest rates. Offhand, I cannot think of any. I can, however, point to distortions in markets created by the steep yield curve and low rates. Now that the various facilities will expire on Feb. 1, we are left with the issue of what is on the Federal Reserve's balance sheet and how they intend to dispose it, if possible. The renormalization of interest rates will dominate the landscape in 2010. Finally, now that I'm back at the desk today, congratulations to Chairman Bernanke on the Person of The Year award. Sincerely. I disagree with much of what he did and how he did it, but I had the luxury of sitting in the stands while he was down on the field.
Rev Shark examined the market reaction:
Market Shrugs Off Fed
2:30 p.m. EST There is nothing very surprising in the FOMC announcement. They will continue to keep rates exceptionally low for an extended time. They see little inflation and some signs of growth. The deterioration in labor markets is abating. Overall, it is upbeat and there are no hints we will see interest rates rise soon. Initially we had a mildly positive reaction, but we are now back to around flat and starting to trade down. I'm rooting for some big moves of any kind just to shake up this dull market a bit. It looks like the "sell the news" reaction is now starting to kick in, but I wouldn't be at all surprised if we change direction a couple more times before the close.
Helene Meisler sounded off on the shift in language:
Fed's Punch Bowl
2:35 p.m. EST As I have said, I am no Fed watcher, but it seems to me they didn't take away the punch bowl -- they moved it, made it a bit harder to get to.
Alan Farley looked at the implications for the dollar/euro cross:
2:35 p.m. EST Trying to break 1.45. That's my focus at the moment for a post- Fed clue.
Marc Chandler broke down the currency and bond implications:
Fed Does Nothing and Says Little
2:38 p.m. EST The Federal Reserve maintained its key market-sensitive phrases about rates being kept low for an extended period of time while recognizing the economy is picking up. One new twist is that the Fed for the first time recognized that the deterioration in the labor market is easing. The dollar initially sold off on that announcement, but the fact that it will continue to unwind its extraordinary liquidity provisions saw the dollar bounce back. The Fed explicitly stated that it expects most of the special liquidity provisions to end on Feb. 1, including the foreign currency swap program. The end of the special liquidity facilities would seem to be a precondition of raising interest rates, which the market of course is sensitive to. That said, the short end of the curve, most sensitive to Fed policy, looks little changed. Foreign exchange trading is choppy. The fact that interest rates have not backed up and yet the dollar is better bid overall suggests this is still a thin, year-end market development more than the kind of fundamental-driven development I have been expecting. Bernanke's confirmation vote is slated for tomorrow. The policy "betting" Web site Intrade suggests there is more than a 90% chance he will be reconfirmed. The $1.4500 area in the euro is key. If this level goes another cent, a slide could quickly be seen. On the other hand, a move above $1.4620 would help stabilize the euro tone. Sterling has been turned down from $1.6400, but support is not until the more distant $1.6200 area. Meanwhile the dollar is flirting with the JPY90 area. Japanese exporters may see this as a new selling opportunity. The S&P 500 took an initial hit on the news, but appears to be stabilizing in well-worn area.
Tim Melvin focused on the labor aspect of the new language:
The Shakespeare of the Fed
2:41 p.m. EST Reading though the Fed release, I do not see anything new except language on the special liquidity programs. That news was already known, so I guess they just wanted to remind us. The interesting part to me is how labor markets are improving but consumer spending is dampened by a weak labor market. Business is not spending and is reluctant to add to payrolls, according to the release, so how exactly is pressure abating in the labor market? The housing market is showing signs of improvement, according to the Fed, so I guess they are in the "a slower decline is good" camp. Whoever writes this release is PR doublespeak Shakespeare. The takeaway here is that the Fed is going to continue to force money into the financial markets and give banks the ultimate yield curve trade to attempt to rebuild balance sheets.
Michael McDonough consider mortgage rates in light of the planned cessation of the liquidity programs:
2:50 p.m. EST As expected, there were no real surprises in today's FOMC statement. The Fed acknowledged improvements in the labor market and reiterated the expiration timetable for its special liquidity facilities -- this could lead to an eventual increase in mortgage rates of up to 100 basis points. The phrase "extended period" remained in the statement, and I still believe we will not see a rate hike until September 2010 or later, depending on inflation data.
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This article was written by a staff member of RealMoney.com.