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 that the economic recovery and labor market have been weaker than expected.

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

Underlined text indicates noteworthy changes from the previous policy statement.

• Fed Funds Target Rate:  “To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate 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 for an extended period.”
• Economic Activity:  “Information received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected.  Also, recent labor market indicators have been weaker than anticipated.  The slower pace of the recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan.”
• Households and Businesses: “Household spending and business investment in equipment and software continue to expand.  However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed.”
• Fed Targets: Inflation and Unemployment:  “Inflation has picked up in recent months, mainly reflecting higher prices for some commodities and imported goods, as well as the recent supply chain disruptions.  However, longer-term inflation expectations have remained stable.”
• Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.  The unemployment rate remains elevated; however, the Committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate.  Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate.  However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
• Future Fed Policy: “The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings.  The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”
• “The Committee will monitor the economic outlook and financial developments and will act as needed to best foster maximum employment and price stability.”
• 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 August 9.