As expected, the Federal Reserve Board’s policies will remain essentially on hold going into the summer. The Federal Open Market Committee, the Fed’s policy board, announced on Wednesday that it will keep its federal funds rate low for an extended period and will maintain its target federal funds rate range at zero to 1/4 percent.
FOMC will also complete its second round of quantitative easing, a $600 billion purchases of Treasury securities known as QE2, as expected this month.
The committee said that while the economic recovery is proceeding at a “moderate pace,” it is happening more slowly than expected. FOMC attributed the slowdown to transitory factors, including higher food and energy prices and supply-chain disruptions from the March earthquake and tsunami in Japan. The committee said its longer-term expectations for inflation “have remained stable” despite a recent increase, which reflects higher prices for commodities and imported goods.
The announcement followed a two-day FOMC policy-making meeting. U.S. stocks opened lower on Wednesday but rose at midday as investors awaited the committee’s statement and Fed Chairman Ben Bernanke’s second-ever news conference, which is scheduled for 2:15 p.m. Bernanke is expected to discuss the new FOMC forecasts.
This week’s FOMC meeting is the last to occur before August 2, when the Treasury Department says that the U.S. will begin to default if Congress fails to raise the country’s debt ceiling.
This article appears in the June 22, 2011 edition of National Journal Daily PM Update.