Federal Reserve Indicates It Will Maintain Low Rates

The FOMC met today and pretty much issued the same message, that the still weak economy warrants a very low level of interest rates for the near future. The one change that they did make was that the proceeds from bonds on their balance sheet that mature will be reinvested in longer-term Treasuries.

So basically the Fed is keeping its foot on the gas pedal, which should go a long way towards avoiding outright deflation, and put to rest the comparisons about Japan.

Here is their statement:

• Information received since the FOMC met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.
• Housing starts remain at a depressed level. Bank lending has continued to contract.
• 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 more modest in the near term than had been anticipated.
• Measures of underlying inflation have trended lower in recent quarters and, 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 0-0.25% 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 help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.
• The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature. 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.

So rates hikes are on hold and quantitative easing will remain in place. I don't think this changes the outlook for equities much. Growth stocks who can grow their earnings despite a lackluster economy should outperform. Bond yields moved lower on the news, with the 10-year yield falling to 2.78%. And gold prices rallied to $1205, as low rates should keep a lid on the dollar.

long GLD