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Fed holds interest rates near 0% but continues to reduce role in the markets

posted on March 16, 2010 at 2:36 pm
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Yes, the Federal Reserve’s Open Market Committee kept its interest rate target and language intact in today’s (March 16) statement:

“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, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” [My emphasis.]

Investors were pretty convinced that the Fed would keep the “extended period” language—but not so convinced that there wasn’t some fretting in the hours leading up to the 2:15 p.m. news. The removal of that worry was enough to give the market a push higher immediately after the news.

The vote was the same as it has been recently: Everybody voted with chairman Ben Bernanke except for Kansas City Fed president Thomas Hoenig, who has in recent meetings objected to the “extended period” language.

If you dig a little bit deeper, you’ll see that while the Fed is being cautious on interest rates, Bernanke and company continue to exit the emergency programs they put in place during the depths of the financial crisis.

The Fed, it notes in its statement, has purchased $1.25 trillion of Fannie Mae and Freddie Mac mortgage-backed securities and about $175 billion of debt from those two-entities. The remaining transactions under those programs will be executed by the end of March. Unless market and economic conditions deteriorate that program will be at an end.

The Fed also notes that it has closed almost all the special programs that it used to pump liquidity into the markets during the crisis. The last one, the Term Asset-Backed Securities Loan Facility, is scheduled to end on March 31 for everything except newly issued securities backed by commercial mortgages. That last program will end on June 30.

Ending these programs isn’t the same as pulling all that liquidity that the Federal Reserve pumped into the economy out of the economy. That’s the next step.

After that the Fed can start to look at ending the support of the Fed’s 0% to 0.25% target interest rate.

That support looks likely to be with us for a while yet—but it too will go eventually, most probably around the end of 2010 or the beginning of 2011.

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  • EdMcGon on 16 March 2010

    I assume when you say “the end of 2010″, you mean after the November elections?

  • EdMcGon on 16 March 2010

    In other Jubak’s Picks news: Microsoft to take Google’s place in China?

    This news was enough to get me to finally buy Mr. Softie.

  • EdMcGon on 16 March 2010

    I’d also raise the target price for MSFT to $33.18. (I know, I’m nitpicking)

  • Christopher on 16 March 2010

    Google hasn’t left the China market yet, but Microsoft could certainly get a boost out of this. What I find funny about the whole thing is that Google was perfectly willing to do the censorship before, until it felt that China had attack it with hackers.

    Microsoft has a thicker skin (as business first) in this matter and will certainly do whatever it takes to make the Chinese government happy.

  • Seaturtlelady on 17 March 2010


    I read the article about Microsoft to take Google’s place in China and was wondering if your buy was short or long term??

    Also was wondering if you raised your limit above $8.00 on AOD?? AOD is doing better than my other investments that I’ve bought since January and wanted to add some more!

    Thanks for your help…

  • EdMcGon on 17 March 2010

    I’m looking at MSFT as a hold for this year, and possibly next, although they will have to show some signs of growing next year too.

    The $8 buy limit on AOD still stands. Hold on to what you’ve got for now.

  • Seaturtlelady on 17 March 2010


    Okay, but didn’t you buy MSFT at a premium?? If the target price is $33.00 that isn’t much of a profit is it??

  • EdMcGon on 17 March 2010

    That’s about a 13% profit. Not great, but I’m not walking away from it either.

  • Seaturtlelady on 17 March 2010


    Thanks for the explanation! I just realized that I haven’t been looking at the per cent profit BEFORE I buy but rather what shows up on Etrade daily after my buy!

  • Seaturtlelady on 17 March 2010


    Ohhh, and I have to deal with the $12.99 buy and the same price to sell. :-(

  • EdMcGon on 17 March 2010

    Which stock did you buy for $12.99?

  • Seaturtlelady on 17 March 2010


    Oops, I may not have worded my earlier post correctly. Etrade charges me 12.99 to buy any stock (INTC, TSM, RYN, etc.) and then when I sell they charge me another 12.99. I was charged 9.99 to buy the AOD. The charges are their commissions! :-)

  • renaldo19 on 17 March 2010

    EdMcGon: There have been eleven previous comments following this article. Six of them were by you; four others were addressed to you. Yesterday you made a dozen separate comments in response to one of Jim’s article. Virtually all of them related to your political and social beliefs, rather than to Jim’s article. Obviously, you have a great deal of time on your hands. However, this is getting ridiculous. This is supposed to be Jim’s site. Most of us read it for his thoughts and advice. It is absurdly inappropriate for your thoughts to outnumber his by a 5 or 6 to 1 ratio. Sometimes you have worthwhile, or at least thought-provoking, ideas regarding articles Jim has written, or related investment articles. Too often, however, your postings only reflect your own ideological and political beliefs, or your efforts to satisfy your own ego needs by showing how witty and clever you are. it is unfair to Jim and his readers for you to attempt to hijack his site, and his readers, for your own purposes. You have your own website. Why not limit your use of this site to pertinent comments regarding Jim’s articles, and use your own site to express your ideas (other than those directly related to Jim’s articles) and why not invite those readers who enjoy your ideological ideas and other personal thoughts to join you. Come on, please be fair to Jim, and please give the rest of us a break already.

  • Seaturtlelady on 17 March 2010

    EdMcGon and all…

    I sincerely apologize for my previous posts. EdMcGon, if you don’t mind just respond to seaturtlelady@yahoo.com that way, I won’t be getting you into trouble! Thanks a bunch!

  • taterbug820 on 17 March 2010

    renaldo19—Don’t you think by posting that long message that has nothing to do with Jim’s post or any part of investing you are actually wasting more of our time than Ed? Frankly, I don’t care because I enjoy reading what everyone has to say on hear and if I don’t want to read something, I just dont’ read it. Jim’s article is his post and rarely does he post a comment so this section is for us to chat. So chat on everyone!

  • DJBarber on 17 March 2010

    Ya really got to give us an ignore button…..

    It amazes me that people come here to read Jims sage advice, and then take some other posters advice on buys and sells. You can find other peoples “advice” on thousands of other boards across the universe, but none of them will back up the buys/sells and philosophy with accurate numbers and quarterly performance reports except Jim.

    It’s a fool’s game to take advice from somebody who doesn’t do that, and doesn’t have a track record such as Jims, and doesn’t prove it on a quarterly basis. And ditto that to take advice from a random poster who feels it’s his place in life to second guess every blog Jim writes.

    Its one thing to add detail and counter point to Jims Blogs, quite another to have the cajones to post your own advice, and a fools game to take it.

    “He who builds according to every man’s advice will have a crooked house.”~ Danish Proverb

  • cabreeden48 on 17 March 2010

    DJBarber, I agree!

  • bsdgv on 17 March 2010

    I presume we are all adults trying to learn something from each other, not just Jim. If there is someone in this group you don’t agree with, you find talkative, even offensive, you just IGNORE him. It will cost you just a few clicks to scroll down the window. It is not like we are in a room talking to each other and EdMcGon forces himself in with his big mouth and loud voice and we can’t hear each other any more.

    If you see something you don’t like, scroll down my friend, scroll down for the love of Jim!

  • RM on 17 March 2010

    This is Mr. Jim Jubak’s site, and it is open for anybody to be a member, log in and post a comment. I would think that Mr. Jubak is the one and only one who can reject entry to his site, reject a comment, or judge a poster/comment.
    I am a frequent visitor on this site, and as a non-investor, I am learning a lot from Mr. Jubak, and all the posters, including EdMcGon. Thank you everyone.

  • Christopher on 17 March 2010

    To Seaturtlelady and others paying a lot for commissions. You might try looking at Zecco. They have $4.50 commissions, and 10 free per month if you have $25,000 or more with them.
    Here is there pricing page:

    As for the other discussion, well I can see people’s point since at times I realize that my posts have been too political or maybe from a technical side and not so much from an investor point of view. So I’m trying to watch that, but on the other hand if the way I see it Jim added this section so a discussion can take place. If he just wanted feedback for him you can email him. So this is a place where he wants others to see the questions and answers (from others), and not just to him, because seldom does he answer directly here, and has set no guide line not to post like this.

    Jim if I’m wrong and you see this, just let us know.

    Please lets all be adults and grow a bit thicker skins, I would hate to see this discussion become like the ones on MSN and such where there is no useful content.


  • Jim Jubak on 17 March 2010

    I think the way to deal with comments you don’t want to read is to scroll through them and don’t read them. One person’s politics is another person’s investment advice. And vice versa. Over the years I’ve learned a lot from people who’se politics I don’t share and from the occasional comment from someone whose comments I didn’t usually find that useful. To me it’s clear that everyone here is trying to be helpful. That said we’re investigating adding an ignore button but so far it looks like it would eat up more server space and add to the cost of running this blog. But we’re still investigating.

  • bsdgv on 18 March 2010

    > You might try looking at Zecco.
    I use Zecco and I have not had any problems with them.

  • cschu5 on 18 March 2010

    For those thinking of buying AOD: It is trading at a lofty 33% premium over net asset value. Pull up a chart and look what happened to the price February 5, 2010. That premium can disappear in a hurry and it may stay disappeared instead of rebounding as it did. Just depends on the event that triggers it. Also 6 or 7% of the dividend looks like return of capital (ref: cefa.com.) I too would like the dividend but it seems to have a good risk for a big capital loss buying at these levels.

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