September 21st 2011 CNBC Stock Market (FOMC Meeting Announcement)

9/21/2011 - CNBC Stock Market (FOMC Meeting Announcement).

The Fed kept policy rates unchanged and exceptionally low but the Fed also decided to engage in a form of "Operation Twist." The fed funds target remains at a range of zero to 0.25 percent. As many expected, the Fed announced it will be extending the average maturity of its purchases of Treasuries-a version of the so-called "Operation Twist." The Fed also will resume purchases of agency mortgage-backed securities. The statement retained language that rates will remain exceptionally low through mid-2013.

There were three dissenting votes. Voting against the action were Richard W. Fisher (Dallas), Narayana Kocherlakota (Minneapolis), and Charles I. Plosser (Philadelphia), who did not support additional policy accommodation at this time.

The FOMC decided to try to lower longer-term credit costs by raising its purchases of longer maturity Treasuries and more agency debt.

"To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate."

"To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. In addition, the Committee will maintain its existing policy of rolling over maturing Treasury securities at auction."

Regarding the economy, the Fed does still see growth as positive but slow, noting weakness in labor markets and a high unemployment rate. Helping to justify today's policy decision, the statement said that inflation has moderated on lower energy and other commodities prices. However, the FOMC gave the economy a downgrade, noting that "there are significant downside risks" instead of merely "downside risks" as noted in the August 9 statement.

The bottom line is that the Fed is essentially leaving no stone unturned to support the recovery. On the slightly delayed release (allegedly due to a jam in a fax machine at the Treasury Department), equities declined.

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