Fed Stays the Course Despite Slowing Growth Rate

The Federal Reserve’s message coming out of its latest two-day economic policy meeting Wednesday was similar to two others in the last three months: that the economic recovery is continuing at a “moderate” pace, though it’s one that has slowed from that of earlier this year and late in 2010. And it’s certainly off from the more optimistic forecasts from 2009 and early 2010 for a robust recovery by this point.

The Fed’s Federal Open Market Committee (FOMC), as expected, left the target for the federal funds rate unchanged at a range between 0% and 0.25%. It continued to say the “exceptionally” low rate continues to be warranted for an extended period into the future as the economic recovery continues to fail in its attempt to kick into a higher gear. What was more of a debate by analysts heading into the announcement was whether the Fed would stay the course on its assets purchases. Chairman Ben Bernanke and co. did commit to finishing its stated plans; but the Fed also did not unveil any new stimuli, either. 

“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 Fed’s announcement noted. “The committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”

The Fed blamed the slowdown to the still expanding growth rate on the obvious factors: higher food and energy prices as well as supply chain disruptions tied to the Japanese disaster. However, the Fed hailed the return of household spending and business investment as well as stable expectations for longer-term inflationary pressures, though it admitted there has been an increase regarding the latter in recent months.

Brian Shappell, NACM staff writer


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