Fed Reaffirms Plan to Shut Down New-Issue Commercial TALF

The Federal Open Market Committee said financial markets are functioning well enough that it can finish closing its special liquidity facilities as planned by shutting down its Term Asset Backed Securities Facility for new-issue commercial mortgages June 31, but it is leaving short-term rates unchanged for now. While there has been "improved functioning" in financial markets, the Fed also noted several continuing economic concerns, the fact that "investment in nonresidential structures is declining" among them. The Fed also said "lower housing wealth" persists and noted, "Housing starts have edged up but remain at a depressed level." Among other concerns were "tight credit" conditions and a lack of employment growth. "While bank lending continues to contract, financial market conditions remain supportive of economic growth," the FOMC said. "Although the pace of economic recovery is likely to be moderate for a time, the committee anticipates a gradual return to higher levels of resource utilization in a context of price stability." Only Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, voted against the decision to leave short-term rates where they are. In dissenting, Hoenig continued "to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability."