Fed Stays the Course Again

Citing “sufficient underlying strength in the broader economy,” the Federal Reserve stayed the course on its assets purchase program wind-down and the extension of historically low rates that is unlikely to change in the next year.

The Fed’s Federal Open Market Commission emerged from its latest economic policy meeting on Wednesday afternoon with the announcement that it would continue adding to the amount of its agency mortgage-backed securities and longer-term Treasury securities holdings. It will also continue the policy of lowering the amount of agency mortgage-backed securities (to $10 billion per month) and longer-term Treasury securities (to $15 billion) by $5 billion each, as stimulus efforts appear not as necessary as they were for recovery earlier in the decade.

“The committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate,” the Fed statement noted.

The FOMC also continued to its self-described “highly accommodative stance” on monetary policy, keeping the target for the federal funds rate at a range between 0% to ¼%. The statement reminded progress in two areas – maximum employment and 2% inflation – will largely determine movement on rates, but also reiterated that even after those two categories fall into line "economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run.”

Only one voting member, Charles I. Plosser, voted against the actions, voicing that the guidance on the rates poorly reflected the level of actual economic progress that has been made in recent months.

- Brian Shappell, CBA, CICP, NACM staff writer

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