Yesterday, the Federal Reserve’s Federal Open Market Committee (FOMC) released a statement addressing the present state of the U.S. economy and prospects for changes in the Federal Reserve’s open market activities.
Information received since the FOMC met in January “suggests that economic activity has continued to strengthen and that the labor market is stabilizing.” Household spending expanded, but was held in check by “high unemployment, modest income growth, lower housing wealth, and tight credit.” Although “bank lending continues to contract, financial market conditions remain supportive of economic growth.” The FOMC anticipates the pace of recovery to be moderate.
The federal funds rate will be maintained in the target range of 0 to 1/4 percent. The FOMC believes that “exceptionally low levels of the federal funds rate” is warranted “for an extended period of time” due to “low rates of resource utilization, subdued inflation trends, and stable inflation expectations.” The Federal Reserve’s securities purchase programs in support of mortgage lending and housing markets, $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt, will conclude as scheduled by the end of this month.
The Federal Reserve has reacted to improving financial markets by closing special liquidity facilities. The Term Asset-Backed Securities Loan Facility, the only remaining special liquidity facility, is scheduled to be closed on March 31, except for loans backed by new-issue commercial mortgage-backed securities which will close on June 30.
Thomas M. Hoenig was the lone vote against the statement. He “believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.”