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FOMC maintains ZIRP at final meeting of 2010

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As the economic recovery continues, household and business spending has risen, but not enough to offset high unemployment. And the housing sector remains depressed. For these reasons, the Federal Open Market Committee once again kept the federal funds rate at 0% to 0.25% and said "progress toward its objectives has been disappointingly slow," reiterating what Chairman Ben Bernanke said in November. Members expect continued low rates of resource utilization and subdued inflation trends "to warrant exceptionally low levels" for the rate for an extended period of time. The FOMC seeks maximum employment and price stability, and the committee anticipates a "gradual return to higher levels of resource utilization in a context of price stability," but members gave no indication as to when this may happen. The Fed will continue with plans to purchase up to $600 billion of longer-term Treasury securities by the end of the second quarter "to promote a stronger pace of economic recovery and help ensure that inflation, over time, is at levels consistent with its mandate." Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, once again cast the lone dissenting vote, repeating his belief that the current Fed monetary policy isn't working. Hoenig thinks the bond buying program, which has become known as QE2, increases the risks of "future economic and financial imbalances," and eventually will increase long-term inflation and possibly destabilize the economy. "The Fed was always going to leave the size of QE2 unchanged today as it is too soon to judge whether it has been a success or a failure," according to Paul Dales, senior U.S. economist at Capital Economics. "And although the case for QE2 may have diminished, an outright tightening of monetary policy is some years away yet. Even if QE2 proves to be the Fed's last roll of the dice, we believe that the markets are mistaken in expecting policy to be tightened in early 2012. Continued high unemployment and low inflation mean we would not be surprised to see interest rates remain at near-zero for at least another full two years." Write to Jason Philyaw.

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