TUESDAY, August 10, 2010 UPDATE

Update 1:30 p.m. ET.

At the conclusion of their one-day meeting the members of the Federal Open Market Committee announced their decision to leave short-term interest rates unchanged for an "extended period." The Committee also made public their intent to "hold steady" their balance sheet by reinvesting the proceeds from their maturing mortgage-backed security portfolio into longer-dated Treasury obligations. This action is deemed to be a preemptive move by the Fed to head-off a sharper down-turn in the economy by maintaining a stronger-than-normal demand for government debt.


Bond daddies like this move by the Fed because it will tend to hold overall interest rates - and especially longer-term interest rates - at lower levels than normal market conditions might have otherwise supported. Stock jocks like the Fed's strategy because it means the Fed remains strongly engaged in the effort to "do what it takes" to stimulate economic growth through monetary processes. For the time being all is well in both the credit and stock markets.