MercoPress. South Atlantic News Agency

Fed anticipates exceptional low level rates at least through mid 2013

Bernanke, Fed chairman; US economy expected to advance at a moderate pace

The Federal Reserve on Tuesday made no changes to its interest rate policy but left the door open for further monetary easing next year depending on the impact of strains in the global financial markets (Europe’s debt problems).

“To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate (price stability and fostering jobs), the Committee decided to continue its program to extend the average maturity of its holdings of securities as announced in September”, said the official Fed release.

“The Federal Open Market 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”, added the Fed saying it was prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent 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 mid-2013”.

On making an assessment of the situation since the last meeting in November, FOMC said data suggests the US economy has been expanding moderately, notwithstanding some apparent slowing in global growth.

“While indicators point to some improvement in overall labour market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable”.

The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.

“Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the dual mandate of price stability and fostering employment.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.