Policy Action

The Federal Reserve’s Federal Open Market Committee (FOMC) made no changes to its policy of maintaining a Federal Funds target rate of 0 to ¼ percent and stating that it “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.”

In language identical to that contained in its November 2011 statement, the FOMC stated that “To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today 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.”

Assessment of the U.S. Economy

 The FOMC statement contained a slightly more upbeat evaluation of the U.S. economy.  The FOMC noted that “the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.”

Today the FOMC noted that “While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated.”  This compares with its November 2 language that was less positive regarding the labor market when it stated that “recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated.”

 The FOMC also noted that the “housing sector remains depressed” as it did in November.  One other potential negative was the FOMC’s statement that “business fixed investment appears to be increasing less rapidly.”  In November, the FOMC was more positive regarding business investment in equipment and software in November when it noted that “Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak.”