The Federal Reserve in its January meeting indicated a $1.25trn agency mortgage-backed securities (MBS) purchase program is on track for completion by the end of Q110. So far, the Fed purchase represents 92% of the allotted MBS from Freddie Mac(FRE), Fannie Mae(FNM) and Ginnie Mae. The Federal Open Market Committee (FOMC) ok'd the continued purchases of more than $100m MBS remaining under the program. The Fed will also buy $175bn of agency debt by the end of the quarter, with purchases slowing ahead of the targeted completion date. "In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter," according to the FOMC statement. "The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets." The New York Federal Reserve Bank last week bought another $12bn of agency MBS, bringing total net purchases under the program to $1.15trn, or 92% of the $1.25trn buying power. Notes from the Fed's mid-December meeting indicated FOMC members considered extending and expanding government-led initiatives to buy MBS. The Fed's Term Asset-Backed Securities Loan Facility (TALF) for new-issue commercial mortgage-backed securities (CMBS) is expected to expire on June 30th. TALF for all other collateral types will expire March 31st. "The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth," according to the FOMC statement. The Fed also agreed to keep the target range for federal funds rate at a 0-0.25% range as part of a move to keep "exceptionally low levels...for an extended period." Federal Reserve Bank of Kansas City chief Thomas Hoenig cast the only vote against the policy action. The FOMC statement indicated that Hoenig maintains economic and financial conditions have changed enough that the expectation of exceptionally low levels of the federal funds rate for an extended period is no longer warranted. Economic activity continued to strengthen as the deterioration of the labor market slowed since the December FOMC  meeting. Household spending is expanding although still constrained by a weak labor market, modest income growth, lower housing wealth and tight credit, FOMC said. Bank lending continues to contract, but financial market conditions are supportive of economic growth. The FOMC said it expects moderate economic recovery leading toward a gradual return to higher levels of resource utilization: "With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time." Write to Diana Golobay.