Fed Holds Line on Rates, Accommodative Policies

Unaffected by the European Central Bank's announcement of a new and larger-than-expected quantitative easing (QE) program designed to boost the struggling European Union, the U.S. Federal Reserve continued to stick to its guns on monetary policy plans Wednesday.  The Fed’s Federal Open Market Committee (FOMC) announced that the target for the federal funds rate would be kept unchanged in the short term and said little else to signal a departure from a largely expected rate increase by mid-year.

The FOMC left the target for the federal funds rate at a range between 0% and 0.25% despite noting that economic activity expanded at a solid pace in late 2014 and the first few weeks of the new year. Therein, household spending continued to rise, helped along by the steep decline in energy prices. The Fed hinted that the timetable for rate increases would likely only be accelerated if inflation rises quickly.

The FOMC also voted to maintain its existing policy of reinvesting principal payments from its holdings of agency debt and mortgage-backed securities and rolling over maturing Treasury Department securities at auction. It believes this, coupled with low rates, will continue accommodative financial conditions.

- Brian Shappell, CBA, CICP, NACM managing editor

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