Fed Keeps 0.0%-0.25% Fed Funds “Target Range;”

The Federal Reserve’s monetary policymaking committee (the Federal Open Market Committee – FOMC) decided today to keep its target overnight interest rate (the “federal funds rate”) in a target range of 0.0% to 0.25%.  The Fed noted the recent run-up in commodity prices and also stated that the economic recovery is on a firmer footing.

The current target interest rate has been unchanged for a record two years and three months (the next longest period over which the rate was held constant was for one year and six months at 5.5% from March 1997 to September 1998).  

Highlights of Today’s Policy Statement (available here):

Underlined text indicates noteworthy changes from the previous policy statement.

• Fed Funds Target Rate:  “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.”
• Economic Activity:  “Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually.”
• Housing Sector:  “The housing sector continues to be depressed.”
• Households and Businesses: “Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak.”
• Inflation:  “Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.”

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.”

• Future Fed Policy: “To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.”

“The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.”

• Members’ Voting Record: All 11 voting members of the FOMC voted in support of the monetary policy action.  These members include: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. 
• Next Fed Meeting:  The next scheduled FOMC meeting is April 26-27.