At the conclusion of its regular, two-day monetary policy meeting this week, the Federal Open Market Committee (FOMC) acknowledged that “economic activity has picked up following its severe downturn.” However, the group of Federal Reserve board governors and federal bank presidents signaled that it was still too early to start raising interest rates, voting to keep the central bank’s benchmark federal funds rate at virtually zero — 0 to 0.25 percent — “an extended period.” To provide support to mortgage lending, the housing sector, and secondary markets and to improve overall credit conditions, the FOMC said the Federal Reserve will maintain its previous commitment to purchase a total of $1.25 trillion of agency mortgage-backed securities (MBS) and up to $200 billion of agency debt from the GSEs.

The U.S. central bank will gradually slow the pace of these purchases, but extended the end-date of its MBS and agency debt programs from December 2009, as originally anticipated, to the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009. The FOMC said it will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve Bank of New York, the institution responsible for administering the Fed’s MBS and agency debt purchase programs, said it will begin gradually reducing the average weekly purchase amounts of MBS, starting with transactions conducted this week, as well as reduce both the size and frequency of individual agency debt purchase operations, with the frequency of agency debt purchases declining to once every two weeks during the first quarter of 2010. In a written statement, FOMC said that conditions in the financial markets and housing sector have improved even further since its last meeting in August, while household spending appears to be stabilizing. “Although economic activity is likely to remain weak for a time, the committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth,” the group wrote.