Housing starts fell 5.9% in February while Ben Bernanke pledged to keep rates unchanged and indicated this would be the case for an “extended period” of time. With the printing presses running on overtime, stocks continued their rally with the Dow up +43.76, the Nasdaq up +15.80, and the Standard and Poors 500 up +8.96.
The Fed’s full statement is as follows:
Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time. 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 of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability. In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.
Thomas Hoenig was the only member who voted against the current policy action, who says that continuing to express the expectation of exceptionally low levels of the federal funds rate for an “extended period” is no longer warranted because it could worsen financial imbalances and increase risks to longer-term macroeconomic and financial stability.
With this news behind us, the dollar could face pressure while the commodity sector should gain. GLD had a gap up and saw strength for the rest of the day.
The casino sector was on fire with MGM posting a clean break above all short term resistance.
The Producer Price Index is due Wednesday at 8:30am and should set the tone for the day’s trading.
