Fed Vows To Leave Rates At Historic Lows For Extended Period = Gold Should Be Flying

So the Fed is determined to kill the dollar and ruin this country. It is official. This should mean dollar should be tanking and gold should be flying. Of course as soon as they report they also interfere illegally in the gold markets to get in front of a jump in the gold price. The tail is wagging the dog again.

Here is the article from Bloomberg: Buy physical gold while you can. Fed is giving all of us a gift by manipulating the price down. Nothing lasts forever....

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Fed Keeps ‘Extended Period’ Pledge, Sees Mortgage-Buying End

By Craig Torres

Jan. 27 (Bloomberg) -- The Federal Reserve kept interest rates near zero and restated its intention to cease buying mortgage-backed securities in March.

At the same time, “the Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets,” the Federal Open Market Committee said in a statement today in Washington.

Policy makers are keeping interest rates “exceptionally low” for an “extended period” as they wind down the record amounts of credit they have provided since the bankruptcy of Lehman Brothers Holdings Inc. in 2008. Kansas City Fed President Thomas Hoenig dissented, saying “financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.”

The Fed also repeated that it will close four facilities supporting money markets and bond dealers in February, as well as dollar swap programs with central banks in Europe and Asia.

The central bank is “prepared to modify these plans if necessary to support financial stability and economic growth,” the statement said. The Fed also said it is winding down the Term Auction Facility and will hold a final auction on March 8.

Chairman Ben S. Bernanke, who tomorrow faces a procedural vote in the Senate on his confirmation for a second term, is looking for signs that the return to economic growth is generating jobs and is accompanied by an increase in credit to people and businesses. The U.S. unemployment rate held at 10 percent in December, while consumer credit dropped a record $17.5 billion in November.

Spending, Jobs

“Household spending is expanding at a moderate rate, but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” the Fed said in its statement. Businesses “remain reluctant to add to payrolls.”

Verizon Communications Inc., coping with subscriber losses at its fixed-line phone business, said yesterday it will cut about 13,000 jobs at the division this year. Home Depot Inc., the world’s largest home-improvement retailer, also said yesterday it will pare 1,000 U.S. jobs.

Stocks have provided no increase in consumer wealth this year. The Standard & Poor’s 500 Index is down more than 2 percent, and the Nasdaq Composite Index has lost more than 3 percent. Last year, the indexes rose 23.5 percent and 43.9 percent, respectively.

Officials kept their benchmark overnight lending rate between banks in a range of zero to 0.25 percent, where it has been for more than a year. Policy makers said that low rates are contingent on “low rates of resource utilization, subdued inflation trends, and stable inflation expectations.”

“Their forecast is for a subdued recovery and the data have been consistent with that,” Julia Coronado, senior economist at BNP Paribas SA in New York, said before the statement. “Retail sales edged lower in December, and credit is still contracting.”

Factory Capacity

Production in the U.S. rose for a sixth consecutive month in December, and housing markets are stabilizing. Industrial production rose 0.6 percent last month, pushing up factory capacity in use to 72 percent. That’s still below the average plant-use rate of 78.5 percent from 2000 through 2007.

“You have sustainable growth, but far below the trend rate” needed to lower unemployment, John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before today’s Fed decision. “I don’t see how the Fed is going to start raising rates with the unemployment rate at 10 percent.”

The economy expanded at a 4.6 percent annual rate in the final quarter of last year, according to the median estimate of economists surveyed by Bloomberg News. The government will release its advance report on gross domestic product Jan. 29.

Home Sales

Sales of existing homes rose 4.9 percent to 5.16 million in 2009, the first gain in four years, the National Association of Realtors said this week. Fed officials will be watching to see if the end of their mortgage bond purchase programs hinders a recovery in housing.

The average rate on a 30-year fixed mortgage fell to 4.99 percent the week of Jan. 21 from 5.06 percent the previous week, according to Freddie Mac of McLean, Virginia.

The 56-year-old Fed chairman’s first four-year term expires at the end of this month, and the Senate hasn’t yet confirmed the former Princeton University professor for a second four-year term.

Bernanke has presided over two years of economic growth that were followed by a financial crisis that produced the worst recession since the Great Depression. The economy contracted at a 5.4 percent annual rate in the fourth quarter of 2008 and at a 6.4 percent rate in the first quarter of 2009.

Labor-Market Weakness

Employers cut 85,000 jobs in December, after revisions showed a gain of 4,000 in November, the first in almost two years. The unemployment rate held at 10 percent.

Wal-Mart Stores Inc., the world’s largest retailer, will eliminate about 11,200 jobs at its Sam’s Club membership warehouse clubs in the U.S. as it hires an outside company to demonstrate products.

Dallas-based financial services company Comerica Inc. said Jan. 21 that it plans to cut 300 jobs, or about 3 percent of its total workforce, this year.

U.S. central bankers forecast in November a slow decline in unemployment this year with the jobless rate averaging 9.3 percent to 9.7 percent in the fourth quarter, according to their central tendency estimates.

“We’ll definitely see job growth in 2010,” New York Federal Reserve Bank President William Dudley told the Nightly Business Report on PBS Television Jan. 13. “Whether it’ll be sufficient to bring down the unemployment rate, materially, remains to be seen.”

To contact the reporter on this story: Craig Torres in Washington atctorres3@bloomberg.net

Last Updated: January 27, 2010 14:16 EST 


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