The Fed’s policy statement, released after a closed-door meeting, said the economic conditions have been expanding moderately. Although the unemployment rate has declined notably, it remains elevated. While the central bank is no longer worried about business fixed investment, the statement described the housing sector as depressed.
The Fed noted that gas prices would push inflation higher in the short-term but that longer-term prices would remain subdued.
Although strains in global markets had eased, they continue to pose “significant downside risks” to the outlook, the statement said.
As expected, the Fed made no changes to its zero-interest rate policy in which it targets the Fed funds rate between 0% and 0.25% and said it anticipates keeping the low rates in place until late 2014.
The S&P 500 SPX +0.87% has surged 59% since the Fed first moved interest rates to zero in Dec. 2008.
Richmond Federal Reserve Bank president Jeffrey Lacker was the only dissent out of 10 voters, saying that he does not think that rates should stay that low for that long. Lacker also opposed January’s decision.
The Fed made no changes to its Operation Twist program to replace shorter-term Treasurys in its balance sheet with longer-term debt. That $400 billion plan expires at the end of June. The Fed also maintained its plan to reinvest maturing mortgage-backed securities into the MBS market and hold its balance sheet steady by rolling over Treasury securities.
Today’s decision keeps all options on the table.
The Fed seems keen on stressing that it will do everything it can to keep rates low and allow the economy time to heal.
Expectations have shifted to a new approach first outlined in the Wall Street Journal last week that the Fed would borrow in the open market and invest the proceeds in long-term Treasurys and MBS.
The minutes of Tuesday’s meeting will be released on April 11, and economists said they would be looking at them closely for signs about the Fed’s next policy steps.
This is a one-day Fed meeting with no press conference by Fed Chairman Ben Bernanke. Fed watchers generally think that major changes to Fed policy will come at a meeting when Bernanke meets the press. The next press conference will be held in April 25.
Analysts are divided about the prospects for another round of easing.
Economists at BNP Paribas say the chances of more easing have risen over the past couple of weeks, while those from Bank of America see a better chance of more easing in the second half of the year.
John Silvia, chief economist at Wells Fargo, believes the Fed will not ease further.
Since the last FOMC meeting in late January, the economic data has generally been good.
The U.S. created 227,000 jobs in February, the third month in a row of job growth above 200,000. Earlier Tuesday, the Commerce Department said retail sales grew at the fastest rate in five months.
But the labor market has improved at a faster pace than expected given the current pace of growth. First-quarter gross domestic product is expected to decelerate to roughly 2% from the 3% pace in the fourth quarter.
Some economists attribute stronger economic data to the effects of the extremely warm winter.
Greg Robb, MarketWatch -March 13, 2012