Fed Holds Rates, Retains ‘Extended Period’ Timeframe
The Federal Reserve left short-term interest rates untouched following the Federal Open Market Committee’s (FOMC) second meeting of 2010.
The FOMC left the fed funds rate at 0% to 0.25%, where it has been since December 2008. As it has said since March 2009, the committee repeated that the rate would probably remain “exceptionally low” for “an extended period.”
Few expected the committee to take any definitive steps on rates yet, but some were watching for a change in the accompanying language that might indicate a change in strategy in the near future.
For the second time Kansas City Fed President Thomas M. Hoenig dissented, saying he believes continuing to express the expectation of “exceptionally low levels” of the federal funds rate for an “extended period” was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.
In its statement the FOMC painted a mixed picture of the economy.
“Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth,” the Fed said.
In light of improved functioning of financial markets, the Fed said it has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility (TALF), is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.
Tuesday, March 16, 2010