The fed announcement, which contained the key phrase “exceptionally low levels of the federal funds rate for an extended period”, came out pretty much as expected. The announcement followed a poor 5 year auction, which traders gave a grade of “D”. The $38 Billion auction saw a higher 1.995%, light a 2.58 bid-to-cover and an indirect bidder take of 34.6% while directs took 10.7%. Tomorrow we have $30 Billion of 7-year. Mortgage rates are holding steady, with the expected fed language helping balance poor auction numbers. The FOMC Statement is below, followed by some additional market news.
Release Date: June 23, 2010
For immediate release
Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing 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 continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, 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 moderate for a time.
Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. 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.
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.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.
New Home Sales Plunge 32.7% in May to a seasonally adjusted annual rate of 300,000 the lowest since
1963 when the reporting began. New home sales is a small part of the overall housing market, accounting for just 8% of homes sold in April. The 32.7% decrease was also a record. The sharp drop followed two big increases that reflected buyers rushing to market before the tax credit expired. The decline exceeded what had been dire expectations, and is likely to raise fears about housing. The sector is a sore spot within the broader economy. Year over year, sales were down 18.3%. The median price for a new home decreased, year over year, in May by 9.6%, to $200,900 from $222,300 in May 2009. Inventories of new homes slid 0.5% in May to an estimated 213,000 homes for sale, from 214,000 at the end of April. But because of the severe sales drop the months’ supply at the current sales rate leaped to 8.5 from a revised 5.8 in April. Regionally, new-home sales plunged 23.9% in the Midwest, 53.2% in the West, 25.4% in the South, and 33.3% in the Northeast.
FOMC rate decision expected at 2:15 today. The FOMC is widely expected to keep its key policy rate–the federal-funds target rate–at a record low near zero for an extended period to revitalize the economy, a decision the central bank has maintained since December 2008. Investors will scrutinize clues from the Fed on the economic outlook given that many recent U.S. data releases have been weak, including an unexpected plunge in existing home sales and weaker-than-forecast job growth.
Treasuries Rally Before Fed’s Decision as New Home Sales Drop to a Record . The two-year note’s yield dropped to 0.673% Tuesday, the lowest level since 0.662% on May 25, as the bond market rallied on an unexpected plunge in existing home sales, which boosted demand for safe assets. The yield is not far away from its record low of 0.601% hit in mid-December 2008 after the collapse of Lehman. The five-year auction, the second leg of this week’s $108 billion in new government note sales, is due at 1 p.m. EDT. While the five-year note auction faces some risks as it will be held before the FOMC rate announcement, traders said the demand should be fine as many investors prefer safe assets as the quarter end approaches. Tuesday’s $40 billion two-year note sale was stellar, which was offered at the lowest auctioned yield ever for the maturity.
Lower Inflation Expectations in U.S. Signal No Rush for Fed to Raise Rates A decline in expectations for future inflation in the U.S. signals that Federal Reserve policy makers should be in no hurry to raise rates as they meet today to set borrowing costs.
U.S. House Negotiators Rebuff Attempt to Revive Plan to Audit Fed Policy U.S. House lawmakers negotiating an overhaul of financial regulation rebuffed an attempt by Republicans to revive a measure that would remove the Federal Reserve’s shield against audits of its interest-rate decisions.
Outlook for Home Prices Grows Darker. A monthly report by MacroMarkets LLC, due for release Wednesday, found that 56% of the 106 economists and other analysts surveyed expect home prices to decline this year. That is up from 40% a month ago.
Bernanke May Get Help From Stronger Yuan in Bid to Buoy Prices, Employment Federal Reserve Chairman Ben S. Bernanke’s efforts to keep U.S. prices and employment from falling may get a helping hand from China’s decision to let its currency gain against the dollar.
Housing Sales Slide Resumes in Threat to Obama’s Stimulus-Driven Recovery The U.S. real estate market threatens to undercut the Obama administration’s stimulus-driven economic recovery as home sales resume their record slide following the end of the federal homebuyer tax credit.
Housing on the Rocks, Make It a Double? Instead of a double-dip recession in housing, this week’s slew of economics reports are likely to point to a long, slow melt.

