Federal Reserve Keeps Rates Unchanged, Favors Long Low-Interest PeriodAugust 09, 2011 Posted by: Paula Solanes
The Federal Reserve Open Market Committee (FOMC) voted today to keep the overnight federal funds rate unchanged at a range of zero to 0.25 percent. The committee said low rates are warranted through "at least 2013" — for an extended low interest rate period, intended to promote the ongoing recovery and help ensure that inflation is at levels consistent with the committee's mandate.
The committee commented that economic growth this year has been "considerably lower than expected" and said "indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing market remains depressed."
Comparing today's statement to the last FOMC meeting on June 22, members today noted that temporary factors only accounted for some of the recent weakness in economic activity. Inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. The committee said it now expects a "slower pace of recovery over the coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually," furthermore citing that "downside risks to the outlook have increased."
The FOMC said it "will maintain its existing policy of reinvesting principal payments from its security holdings" and "will regularly monitor the size and composition of its securities and adjust holdings as appropriate." It also discussed the policy tools available to promote a stronger economic recovery as related to price stability, and said it will continue to monitor incoming information and is prepared to use policy tools as appropriate.
Three of the 10 FOMC members voted against the policy action. They would have preferred to continue to describe conditions as likely to warrant exceptionally low levels for an extended period, rather than to commit to a specific period.Read More