FOMC Holds Rates; Downgrades Outlook

WASHINGTON — The Federal Open Market Committee downgraded its outlook for economic growth Tuesday and decided to maintain the federal funds target rate in a range between zero and 25 basis points.

“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the committee said in a statement.

The committee decided to offset any declines in the size of its balance sheet by using purchases of Treasury bonds to offset the maturation of its portfolio of mortgage-backed securities.

“This will help to keep monetary policy easy even if inflation further decelerates, which is likely,” said Diane Swonk, chief economist at Mesirow Financial. “The majority of the Fed is clearly moving closer to another quantitative easing of monetary policy, or further expansion of the Fed’s balance sheet this fall.”

The committee last changed the federal funds target rate in December 2008 and has not raised the nation’s benchmark lending rate since June 2006.

For the fifth straight meeting, Federal Reserve Bank of Kansas City president Thomas Hoenig was the lone dissenter. He contends the economy is “recovering modestly, as projected,” according to the statement. The discount rate remained at 0.75%, unchanged since February.

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