Instant View: Fed maintains record low rates; Hoenig dissents

NEW YORK (BestGrowthStock) – The U.S. Federal Reserve on Wednesday left interest rates near zero and vowed to keep them there for a while to nurture an economic recovery held back by stubbornly high unemployment.

KEY POINTS: * The policy statement reflected a somewhat brighter tone than it had at the previous meeting in December, although the Fed removed a reference to improvement in the housing market. * “Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating,” the Fed said. * In the December statement, the Fed had said economic activity “has continued to pick up.” * The decision to hold rates steady was 9-1, with Kansas City Federal Reserve Bank President Thomas Hoenig dissenting because he wanted the central bank to eliminate a phrase vowing to keep rates exceptionally low for an extended period.

COMMENTS:

GEORGE BALL, CHAIRMAN AND CEO, SANDERS MORRIS HARRIS GROUP,

HOUSTON:

“The Fed itself signaled that it’s slightly more sanguine about the fiber of the economic recovery, that the patient could be moved from the emergency room into intensive care. There’s nothing unexpected in that.

“The dissent of Hoenig is a surprise and created some concerns that perhaps the Fed was going to move too slowly in terms of removing monetary stimulus and thereby running a higher risk that inflation could ignite before the Fed can restrain it.

“The most important part of the Fed’s announcement and perhaps the most unsettling for investors over the short-term is that they are giving the March end-date for purchases of mortgage-related securities. That will give us a true test of the strength of that vital marketplace, to see if it can stand on its own without being propped up by big brother.

“Some traders are worried that absent the Fed being a purchaser of last resort the market for mortgage-related securities might nosedive once again and that would create a fresh round of wrenching in all of the economies.”

THOMAS WILSON, MANAGING DIRECTOR OF INSTITUTIONAL INVESTMENTS,

BRINKER CAPITAL, BERWYN, PENNSYLVANIA:

“With the Bernanke appointment in question they weren’t going to do anything drastic. Because of that in particular I was just expecting to get the same message that they’ve been sending to the market.

“What the market is now looking for out of Washington is what President Obama is going to say in tonight’s State of the Union and what is going to go on with Bernanke’s reappointment. And I’d throw in a third – tell me more about these potential new banking rules we’ve been hearing about.”

RICHARD SICHEL, CHIEF INVESTMENT OFFICER, PHILADELPHIA TRUST

CO, PHILADELPHIA:

“The Hoenig dissent was interesting. It is interesting that somebody is willing to step up. Investors will be watching if there will be other dissenters and will the next statement maybe back away from (vowing to keep rates exceptionally low for an extended period), which I think would be a positive. It would mean the Fed is actually seeing some real improvement and they have the confidence to set the word out on that.”

DOUG WARNER, VICE PRESIDENT, MF GLOBAL, CHICAGO:

“We just have a core long position here that will liquidate each time the Fed comes across with the same rhetoric. It’s more of a fiduciary responsibility.

“The market still maintains this attitude that the Fed is on

hold. This little blip in the market is a change in positions rather than an adjustment of what we think the Fed is doing in the short term

“The dissension is certainly concerning. Hoenig is the most hawkish voting member of the Fed. Other members are still of the thought that they want to try to wind down the surge in the monetary base first, and deal with interest rates later.”

PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO IN NEW

YORK:

“The FOMC statement (Read more about the Fed’s FOMC) is almost identical to the last one in December. The comments on both the economy and inflation were little changed and they still plan on keeping the end of first quarter deadline for the purchases of MBS/Agency debt.

“The key difference though is that Fed President Hoenig, believes that ‘economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the fed funds rate for an extended period was no longer warranted.’ My translation is the financial emergency that brought the fed funds rate to almost zero in Dec 2008 is no longer here and thus the Fed should adapt to a different, though still difficult, economic situation.”

BRUCE BITTLES, CHIEF INVESTMENT STRATEGIST, ROBERT W. BAIRD &

CO, NASHVILLE:

“There was one dissenter which is the first time we’ve had someone dissenting in quite a while. He was raising the inflation flag but outside of that, I don’t see a whole lot in this report.

“It’s only one, (Hoenig) is a new member of the Fed and historically a hard liner against inflation, so it’s not too, too surprising that he might raise some concern.

“I didn’t expect (anything new) with the economy soft and the Fed indicating all along there would be no rate hike for a considerable period of time, so I don’t see that report being a market mover.”

LAWRENCE GLAZER, MANAGING PARTNER, MAYFLOWER ADVISORS, BOSTON:

“Stocks initially took a hit and then you saw a reversal — Treasuries are also reversing. The Treasury market was very strong this morning.

“Treasuries continued to attract assets as investors have few alternatives, particularly as the equity markets have become jittery over the last few weeks with concerns that the global growth story is still intact. The reaction right now to the Fed has actually been somewhat neutral. You are seeing some stabilization of equity prices and some stabilization of risk assets and a little bit of a selloff in Treasuries.

“There is still a jittery tone to the market, particularly as the market digests both economic and political news and digests the snapback rally in equities over the past 12 months.”

JOHN SILVIA, CHIEF ECONOMIST, WELLS FARGO SECURITIES,

CHARLOTTE, NORTH CAROLINA:

“The first important takeaway was the upgrade to the economic outlook and the second interesting point was the dissent. The dissent should take some of those out there who thought the Fed would be on hold for another year or so out of the equation. The Fed will keep rates low for the remainder of the year. So, the majority now believes the Fed will be on hold for just this year.”

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Instant View: Fed maintains record low rates; Hoenig dissents