Fed Holds Steady on Low Rates

The Federal Reserve's monetary policymakers today announced the Fed would keep the target range for the federal funds rate at 0% to 0.25% and that conditions likely would warrant exceptionally low levels for the rate "at least through late 2014."
 
The Federal Open Market Committee (FOMC) also said it would continue its Operation Twist program to extend the average maturity of its holdings of securities as announced in September. It will "maintain its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction." It also will regularly review these holdings' size and composition and "is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability."
 
Noting that the economy has been expanding moderately, with  labor market conditions improved and unemployment rate declined, and advances in household spending and business fixed investments, the FOMC also said that "inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable." 
 
The committee "expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate," said the FOMC in its statement after  today's meeting.
 
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the committee expects to maintain a highly accommodative stance for monetary policy, said the FOMC statement. In holding the rate range steady, it said it "currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."

Voting for the FOMC monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.