The Federal Reserve Board announcement today was that there will be no change at all in its policy from it’s previous policy statement. The Federal Reserve said it will keep interest rates at the unprecedented rate of zero to 0.25% for the foreseeable future, saying it would “keep interest rates low for  an extended period.” The Fed also said that it will continue its previously announced Treasury buys to try to bring more confidence to the marketplace and stimulate the economy. Treasury market investors were actually fairly disappointed today, as some had expected the Fed to announce an increase in the amount of purchases it would be making.

Stock traders were also fairly disappointed with the Federal Reserve announcement because of the lack of changes. The fact that there was no change in the federal funds rate was expected, but the lack of any kind of additional stimulus news or details on what the Federal Reserve may do to help the economy exit this deep recession did shock quite a few people. It seems that the statement was taken as just continuing with the status quo, and many traders and strategists on the street wonder whether that will be good enough to help the economy move higher.

In fairness to the Federal Reserve, it is in a very tight box right now. The Fed has taken heat from many about fiscally irresponsible, and is trying to stay within its boundaries as best as possible while still responding in a firm way to a major economic crisis.  Over time if changes need to take place I certainly hope the Fed will be quick to respond to an economy that changes on a daily basis. For now it seems that the Federal Reserve believes that things are getting better very slowly, and that the current course is the right course for this economy.

*If you would like to read the full text of today’s FOMC Monetary Policy Statement Click Here*

Just minutes ago the Federal Reserve announced that it will be buying $300 billion in longer-term Treasury Bonds over the next six months in a major effort to help the economy recover. Economists and investment strategists were quite surprised by this move by the Federal Reserve Open Market Committee. In response to this move treasuries, especially intermediate-term treasuries have been bought up quickly as investors scramble to invest in the things that our government is investing in. If you would like to read the full text of the FOMC statement you can here.

Previously many experts believed that the FOMC would hold off on buying treasuries due to the risks of inflation in the future. Clearly the Federal Reserve has decided that it is willing to take the risk of causing inflation over the long run so that it can try to jump start the economy and provide stabilization to the overall markets.

What are the benefits of this major treasury buy on the market? The Fed clearly wants to drive mortgage rates lower and lower credit spreads on loans on balance sheets. This move also shows that the Federal Reserve has another major weapon to use to combat the crisis, when some were worried that they were left with very little to do.

Are there possible negatives to this move? The long-term risk of inflation is there, but it is one that the FOMC is likely not a bit worried about right now, and I can’t blame them. The bigger risk is that this does signal that the Federal Reserve believes that the economic crisis we are currently in is getting worse and worse and they needed to make a drastic move such as this one.

The bottom line is I believe this move overall is a wise one and one that should help in the long run, but the fact that this move had to be made in the first place has to give investors some pause about the state of the economy in the coming quarters.