Treasury Outlook

We could sense a little relief from its statement that the "pace of economic contraction is slowing" while omitting "the economy has continued to contract".

The Fed also eased some concerns about deflation risk, which would be superseded by mounting inflation fear (not in near term, though).

The rise in inflation fits in with Bernanke' s address, that the huge money pumped into the system by the Fed could raise concerns about inflation.

A day after the Fed's meeting, the Fed announced the modification and extension of the Fed's special liquidity measures including downsizing and suspending some less demanding liquidity measures due to improvement in the financial market.

Some optimists now expect that the beginning of an exit strategy from the Fed's hefty involvement in supporting financial markets is coming closer.

However, the Fed still left open the option to continue closely monitoring financial markets and the need for and effectiveness of the Fed's special liquidity facilities and arrangement.

We may perceive that liquidity stress has already declined and financial markets have improved in recent months.

It is beyond doubt that the Fed will keep its interest rate at the record low for months to come and leave itself room to adjust several measurements, as the road for recovery is still uncertain even now.

The interest rate policy may not be changed as long as we don't see a clear picture of recovery in both the financial and real sectors.

So next year would be a better time to see the interest rate rise.