NEW YORK – The Federal Open Market Committee announced it did not change rates at its two-day meeting, which ended today, and maintained that conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
The target range for federal funds remains zero to 0.25%.
The statement issued by the Fed said “economic activity has continued to strengthen and that the deterioration in the labor market is abating.” Personal spending is growing moderately held back by the weakness in the job market.
“While bank lending continues to contract, financial market conditions remain supportive of economic growth,” the statement said. “Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.”
Resource slack has kept prices in check and longer-term inflation expectations are stable, resulting in “subdued” inflation for some time.
“To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets,” the statement said.
The statement also said that the Fed will end the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced, and will halt its temporary liquidity swap arrangements with other central banks at expiration on February 1.
The Term Auction Facility will wind down with two more auctions: $50 billion in 28-day credit on February 8 and $25 billion in 28-day credit at the final auction on March 8. “The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth,” the statement said.
Federal Reserve Bank of Kansas City President Thomas M. Hoenig voted against the actions, the statement said, because he believes “economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.”
