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March 20, 2013 at 11:32 AM
The Federal Reserve’s policymakers decided Wednesday to hold firm on their current interest rate and quantitative easing policy, saying that the U.S. economy is still fragile enough to warrant no changes.
At the same time, Fed Chairman Ben Bernanke signaled that the Fed’s continuing policy serves as an economic counterbalance to Congress’ sequester spending cuts. He also admitted that the Fed was aware of market players’ “reach for yield” as interest rates remain persistently low and that there were “balance sheet risks” associated with the U.S. government carrying heavy amounts of debt on its books.
Saying that the Federal Open Market Committee continues to see downside risks to the economic outlook, the FOMC’s policymakers announced in Wednesday’s release that they would keep the “exceptionally low range” for the federal funds rate in its current target range at 0% to 0.25%. These low rates “will be appropriate at least as long as the unemployment rate remains above 6.5%” and inflation stays no more than half a percentage point above the 2% goal, the Fed said.
In its efforts to prop up the economy by keeping interest rates down, the Fed also will continue to buy agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.
Fed watchers agreed that there were no surprises in Wednesday’s announcement.
“For now, the message continues to be full speed ahead on QE3,” wrote Jim O’Sullivan, chief U.S. economist with High Frequency Economics, Valhalla, N.Y., in an analyst note. “In short, nothing very surprising. The message: the growth data have been a bit better than expected, but much more improvement is needed and there are still downside risks. For now: no let-up in Fed easing.”
