Fed to leave rates 'exceptionally low' through mid-2013
The Federal Reserve anticipates a sluggish economy will keep the federal funds rate at "exceptionally low" levels through at least the middle of 2013. The federal funds rate is the interest rate private banks are charged for borrowing from the Fed. When the financial crisis struck in 2008, the central bank lowered its lending rate to zero in an effort to keep liquidity flowing through a market suffering from a credit crunch. But the Federal Open Market Committee said Tuesday economic growth had slowed to a rate members had not expected. "To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the committee decided today to keep the target range for the federal funds rate at 0 to 0.25%" the FOMC said. The FOMC also will continue reinvesting principal from its holdings in securities bought since the crisis. There were three dissents on the committee action: Richard Fisher of the Dallas Fed, Narayana Kocherlakota of the Minneapolis Fed, and Charles Plosser from the Philadelphia Fed. The committee said household spending flattened recently, investment outside the U.S. housing sector remains weak and the housing market remains mired. Although there were signs of inflation earlier in the year, specifically on the rising price of commodities and imports, inflation has slowed and the FOMC expects it to settle over the long term. "The committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the committee judges to be consistent with its dual mandate," the FOMC said. Write to Jon Prior. Follow him on Twitter @JonAPrior.