The FMOC, the Federal Open Market Committee met today and released their decisions on monetary policy. The key interest rate of 0.25% is to remain unchanged. This rate means there should not any real change in the overnight borrowing rate in the country. The statement released alongside this announcement could not realistically be called a positive one. A more positive approach had been expected from the Federal Reserve in the wake of many positive indications about the economy in recent weeks. The statement promised the Fed would continue to invest housing debt into mortgage backed securities and said that the housing market remains depressed after the housing crisis. They also suggested in their outlook that low rates of interest would continue in the future through until mid 2014.The target rate until then remains between 0 and 0.25%.
The Fed said that despite the economy’s apparent recovery there were still many downside risks. This suggests the recovery is not being taken for granted at the Federal reserve. They are to continue with Operation Twist, a procedure to lower the price of borrowing in the market by keeping the interest rate of 10 year bonds at very low rates. The central bank said in its statement that the economy was expanding moderately, seeing that the jobless rate had fallen but still keeping its eye on the fact that it was much larger than it should be. They expected inflation to rise in the short term based on rising gas prices.
The FMOC meets eight times a year to decide on the key interest rate in the market and study the Federal Reserve’s policies. Their main instrument is the key rate which sets influences the overnight borrowing rate in the United States. The rate the committee sets is usually expected and can be projected quite well so the importance of this announcement comes mostly from the statement released. The statement has recommendations and analysis of the country’s monetary situation. The statement can be used to analyse the Federal Reserve’s general outlook on the economy as well as for projecting future moves they might make.
The expectations extrapolated from the slew of positive economic data that has come forth in the past week including good news on jobs and consumer confidence have clearly not swayed the Feds from a more moderate statement on the economic outlook. The central bank is keeping a firm hand on the recovery of the economy and is ensuring realism about the state of the recovery.