The Federal Reserve’s Federal Open Market Committee (FOMC) announced today that it would take new steps to stimulate America’s lagging economy. In addition to maintaining the target range for the federal funds rate at 0 to 0.25%, the FOMC also will also extend the average maturity of its securities holdings, with the goal of keeping long-term interest rates low.

“The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of six years to 30 years and to sell an equal amount of treasury securities with remaining maturities of three years or less,” said the FOMC in a statement.  “This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.”

The FOMC also reiterated the federal funds rate is likely to remain in the 0-0.25% range at least through the middle of 2013, citing low resource utilization along with a subdued outlook for inflation over the medium-term.

Safe in the knowledge that rates will remain low, and that long-term interest rates will hopefully be lower, banks and other lenders will ideally be moved by the Fed’s most recent actions to loosen up credit, generating an overall increase in business and especially consumer spending. Although, in its statement, fears of inflation are modest at best, some analysts believe the shift in the Fed’s portfolio from shorter-term, to longer-term holdings could create a spike in inflation. 

Three members of the FOMC voted against the decision.

The Fed's actions came following this morning’s news that Congressional Republicans sent a letter to the Federal Reserve urging Chairman Ben Bernanke not to take any further actions that could be described as “monetary stimulus.” “Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people,” said the letter, signed by Senate Minority Leader Mitch McConnell (R-KY), Senate Minority Whip Jon Kyl (R-TX), Speaker of the House John Boehner (R-OH), and House Majority Leader Eric Cantor (R-VA).

Although it turned out to be largely ignored by the FOMC, as many expected it to be, the letter ruffled feathers as a rare attempt to influence the behavior of the Fed, which is considered an independent agency designed to operate beyond the bounds of political influence.

Stay tuned to NACM’s blog and eNews for further updates and analysis.

Jacob Barron, CICP, NACM staff writer