NEW: Fed Holds Steady On Monetary Policy
WASHINGTON (Filed 2:45 p.m. ET 3/20/13)--The Federal Reserve's policymakers today kept their quantitative easing bond-buying plan intact and continued its forecast of a 6.5% jobless rate by 2015, which means the federal funds target interest rates remain steady, at 0% to 0.25%.
The Credit Union National Association's economists will provide insight on the impact on credit unions in Thursday's News Now.
The Federal Open Market Committee, which is the key monetary policymaking body at the Fed, noted "a return to moderate growth following a pause late last year." The labor market has "shown signs of improvement in recent months but the unemployment rate remains elevated."
The FOMC noted advances in household spending and business fixed investment, a stronger housing sector, but added "fiscal policy has become somewhat more restrictive." It also said inflation is running "somewhat below the committee's longer-run objective, apart from temporary variations" due to energy price fluctations. "Longer-term inflation expectations have remained stable."
The FOMC "expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of fostering maximum employment and price stability.
"The committee continues to see downside risks to the economic outlook," said FOMC, which "anticipates that inflation over the medium term likely will run at or below its 2% objective."
The committee will continue purchasing additional agency mortgage-backed securities (MBS) at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month--known as its $85 billion per month quantitative easing plan. It "is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency MBS in agency MBS and of rolling over maturing Treasury securities at auction." Together the actions "should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."
FOMC will continue the bond-buying "and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability." It also will "take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives."
As for maintaining the federal funds rate at 0% to 0.25%, the committee "expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."
In particular, the committee "currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."
In determining how long to maintain its highly accommodative stance, the committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When it "decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%."
Voting for the FOMC monetary policy action were: Fed Chairman Ben S. Bernanke; Vice Chairman William C. Dudley; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.
Voting against the action was Esther L. George, who expressed concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.