The FOMC Statement has been released. As expected there was no change in the Fed's tone or outlook. The December statement is essentially the same as the November statement with exception to a couple of slight tweaks in the opening paragraph that provide no new insight. QEII will go on as planned.

Here is a Quick Recap....

DJN-DJ FED KEEPS FED FUNDS RANGE UNCHANGED AT 0.0% TO 0.25%
DJN-DJ FOMC: VOTED 10-1 FOR FED FUNDS RATE ACTION
DJN-DJ FED LEAVES DISCOUNT RATE UNCH AT 0.75%
DJN-DJ FED: ECONOMIC RECOVERY IS CONTINUING
DJN-DJ FED: ECONOMIC RECOVERY TOO SLOW TO DENT UNEMPLOYMENT
DJN-DJ FED: TO CONTINUE TREASURY SECURITIES PURCHASES
DJN-DJ FED: HOUSEHOLD SPENDING INCREASING AT 'MODERATE PACE'
DJN-DJ FED: EMPLOYERS REMAIN RELUCTANT TO ADD TO PAYROLLS
DJN-DJ FED: BUSINESS SPENDING DECELERATING COMPARED TO EARLIER
DJN-DJ FED: HOUSING SECTOR REMAINS DEPRESSED
DJN-DJ FED: LONG-TERM INFLATION EXPECTATIONS STABLE
DJN-DJ FED: UNDERLYING INFLATION TRENDING DOWNWARD
DJN-DJ FED: PROGRESS ON RECOVERY 'DISAPPOINTINGLY SLOW'
DJN-DJ FED:TO REGULARLY REVIEW PACE OF SECURITIES PURCHASES
DJN-DJ FED:FED FUNDS TO STAY EXCEPTIONALLY LOW FOR EXTENDED PERIOD
DJN-DJ Fed Sticks To Easy Money Policy As US Recovery Gains Steam

Here is the FOMC Statement....

Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

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 for the federal funds rate for an extended period.

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.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. In light of the improving economy, Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

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Plain and Simple: Ben seems to be thinking the same thing I am....THIS IS CHESS NOT CHECKERS!

Yesterday I called attention to a lack of willing bargain buyers in the bond market. This is once again evident today as yield spikes are occurring with minimal resistance. Profit taking (short covering) has been a constant into any rallies as biases are even more tactical than usual thanks to year end balance sheet considerations. Flows are scattered at best and liquidity has dried up. Stop trying to rationalize this market. This move has been greatly exaggerated and does not reflect economic reality.

Market Reaction....

No Change = No Reason to Bargain Buy Today!

10s up to 3.451%. 5s are approaching 2.00% again. And production MBS coupon prices are heading even lower. Our earlier reprice alert is still in effect.