Fed Sees Signs of Economic Recovery but Weakness in Housing

By: Carrie Bay

The nation’s economic recovery is on “firmer footing” with conditions in the labor market “improving gradually,” the Federal Reserve said in a statement issued Tuesday following its regular monetary policy meeting.

The Fed’s view of the economy was noticeably more upbeat compared to its assessment in previous months that the recovery was simply “continuing,” but that optimism stopped short when the discussion turned to housing.

With property values still sliding, a ballooning foreclosure pipeline, and a shadow inventory of distressed REOs that experts say could take more than three years to clear, housing remains the biggest drag on the economy’s healing process. The Fed said bluntly in its statement Tuesday, “the housing sector continues to be depressed.”
While progress in the residential real estate market is lagging, improving economic indicators at the macro level led the U.S. central bank to stick to its guns on policy direction.

The Fed board voted to proceed ahead as planned with regard to its decision last November to expand its securities holdings.

The central bank is maintaining its existing policy of reinvesting principal payments from mortgage-backed securities previously purchased from Fannie Mae, Freddie Mac, and Ginnie Mae. Officials also reiterated their goal of buying another $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.

The Federal Reserve board once again voted to keep the target range for the central bank’s benchmark federal funds rate – the rate at which banks lend to one another – at 0 to 0.25 percent.

The central bank has maintained that level for over two years now, and it once more indicated that economic conditions are likely to dictate an “exceptionally low” rate target for an “extended period.”

The Fed noted, “The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.”

URL to original article: http://www.dsnews.com/articles/fed-sees-signs-of-economic-recovery-but-weakness-in-housing-2011-03-15

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