It's The Economy Stupid: No Change In Interest Rates

In what is perhaps the least surprising piece of news to come out in recent memory, the Federal Reserve Open Market Committee decided No Change In Interest Rates. They are going to leave the Fed Funds Target Rate at zero to 0.25 percent.  Richmond Fed President Jeffrey Lacker dissented for the third meeting in a row. Lacker has said he believes the first increase in interest rates will likely be necessary in 2013.  The Fed first lowered its target interest rate to a range of zero to 0.25 percent in December 2008, and it has not raised rates since then.

 

Federal Reserve policy makers said they expect growth to gradually accelerate, while refraining from new actions to lower borrowing costs.

 

“The committee expects economic growth to remain moderate over coming quarters and then to pick up gradually,” the Federal Open Market Committee said in a statement today at the

conclusion of a two-day meeting today in Washington. “Despite some signs of improvement, the housing sector remains depressed.”

 

Policy makers led by Chairman Ben S. Bernanke are holding off on additional steps to boost the economy amid signs the more than two-year expansion is gaining strength. Still, the jobless rate isn’t declining fast enough to satisfy central bankers, who repeated their view today that borrowing costs are likely to remain “exceptionally low” at least through late 2014.

    

“Strains in global financial markets continue to pose significant downside risks to the economic outlook,” according to today’s statement. The Fed has cited the risk from strains in global markets in its previous five meetings. In March it said those strains had “eased.”

 

Operation Twist

 

The central bank said it would continue its swap of $400 billion of short-term debt with long-term debt to lengthen the average maturity of its holdings, a move dubbed Operation Twist.

The Fed is scheduled to complete the program at the end of June. The Fed also didn’t alter its policy of reinvesting its portfolio of maturing housing debt into agency mortgage-backed

securities.  Inflation “has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline,” the Fed said today. Gas prices will affect inflation “only temporarily,” it said.

 

So…looks like that money market fund is going to pay squat for a little bit longer.

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

Ph:  225-342-0013

Fx:  225-342-9721

Email:  jbroussard@treasusry.state.la.us

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Baton Rouge, LA 70802

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