The Federal Open Market Committee or the FOMC left rates unchanged today signaling they don’t fear inflation and this sent an already climbing stock market soaring.

The Dow was up about 95 points when FOMC made the announcement and within the hour the Dow rocketed to up over 170 points.

It was, of course, financial stocks leading the way both before and after the announcement probably on the faith this Fed stance will bring consumers back into the credit markets providing banks the opportunity to make more loans at greater spreads. Citigroup and in after hours trading, Bank of America, got a huge push by large institutional investors.

Another sector that saw increasing stock prices were the home builders. Toll Brothers and Pulte Homes, to name a few, saw a renewed interest in their stock by a broad base of investors.

The key piece of the announcement (published below) was “…economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

All the pundits felt the “extended period” was significant in that it was the same language they used in the last FOMC rate announcement at the end of June. Had the Fed removed that language, the reaction would have been different.

So, here is the press release:

Release Date: August 12, 2009

For immediate release

Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. 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 are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

If you are shopping for mortgages stay abreast of rate movements and be sure to get quotes from responsive lenders who can quote and lock in a timely fashion.

We can help…our quote service will route you to responsive lenders who make sure you don’t miss a rate move to the downside.

Good Luck!

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