Fed statement encouraging, says Richmond analyst

The Federal Reserve's Open Markets Committee did pretty much as expected yesterday, leaving its key interest rate target unchanged between zero and 0.25 percent and sticking to plans to purchase government bonds and asset-backed securities.

Analysts and economists liked what they saw when they parsed the Fed's statement for signs of where it thinks the economy is going. And that is up, if slowly, said Christine Chmura, president of the Richmond-based economic consulting firm Chmura Economics and Analytics.

She said the committee's statement that it is looking for gradual recovery, with prices remaining stable, echoes what many economists are saying these days.

Still, "It's good that we hear that," she said, especially from the powerful group that sets the nation's interest-rate policy.

"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 sustained economic growth in a context of price stability," the Fed said in the statement issued yesterday afternoon after the committee's two-day meeting.

Jamie Cox, managing partner with Harris Financial Group, said the statement marked an important turn.

"We have been dealing with the threat of deflation," he said, referring to a spiral of falling prices and layoffs that feeds upon each other. "Today, the deflation scare is over."

Chmura said the statement likely means short-term interest rates will remain down, keeping consumer's borrowing costs low. And the committee's view that there's enough slack in the economy to keep inflation down was likely to keep a lid on mortgage rates by calming bond markets, she said.

Contact David Ress at (804) 649-6051 or .