WASHINGTON – With signs of strengthening growth, as temporary factors holding back the economy receded, the Federal Open Market Committee decided to continue Operation Twist and kept the fed funds rate target at zero to 0.25%.
Despite the good news, FOMC members remained concerned about continued weakness in the labor market and the high unemployment rate.
Maintaining Operation Twist, the FOMC said, supports a stronger economic recovery and helps ensure that inflation remains at a reasonable level.
The committee voted to continue extending the average maturity of its holdings of securities and to maintain its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.
The committee will regularly review the size and composition of its securities holdings as is prepared to adjust those holdings as appropriate.
The committee also decided to keep the target range for the federal funds rate at zero to 0.25% and anticipates that economic conditions are likely to warrant exceptionally low levels for the rate at least through mid-2013.
But, the panel warned, “the unemployment rate will decline only gradually” and “significant downside risks to the economic outlook, including strains in global financial markets” remain.
Also, inflation will be at or below levels “consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations. “
The FOMC statement also reiterated it “is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.”
The only dissenter was Federal Reserve Bank of Chicago president Charles L. Evans, “who supported additional policy accommodation at this time.”
