UPDATE: FOMC decided to hold interest rates steady at 0.25 per cent, with very few changes to the wording of its statement.Click for updates >
The Fed said inflation “had picked up somewhat,” although this was mostly due to high gas and oil prices. It sees inflation “at or below” its target rate in the long term.
Further, long-term projections indicated that the Fed expects interest rates to stay low through late-2014, suggesting that committee members’ projections have not changed materially.
This announcement surprised no one. The announcement of FOMC members’ projections at 2 PM ET should be more exciting.
Here’s the full release:
Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. labour market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.
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. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 per cent and 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.
The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining 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. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.
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.
This month’s interest rate decision at 12:30 PM ET is the first—and perhaps least important—of three announcements from FOMC today. The Fed will also release committee members’ projections for future policy at 2 PM ET and then Chairman Ben Bernanke will speak to reporters at 2:30 PM ET.
Analysts are not looking for any change in the Fed’s federal funds target this month, believing the committee will hold rates steady at 0.25 per cent for now.
However, we could see some changes in the wording of the statement, perhaps indicating changing perceptions of future growth and inflation or a change in the future duration of ultra-low interest rates. Most recently, the Fed has said it sees “economic activity…expanding moderately,” unemployment still “elevated,” “overall consumer price inflation was relatively subdued” despite high oil prices, and low interest rates continuing through late 2014.