FOMC: Fed Funds Rate to Remain Low 'For Some Time'
The Federal Open Market Committee announced late Wednesday the outcome of its days of meetings: It decided to keep the target range for the federal funds rate at zero to 0.25 percent. The FOMC echoed projections it made in mid-December when it originally slashed the rate effectively to zero, saying on Wednesday that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time." The committee acknowledged the economy has "weakened further" since its last meeting in December, but showed optimism that "gradual recovery" will begin sometime later this year. The FOMC also said the Federal Reserve will continue supporting the financial market by purchasing agency debt and mortgage-backed securities and is even prepared to purchase longer-term Treasuries "if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets." The committee acknowledged these actions will likely keep the Fed's balance sheet at a high level but predicted inflationary pressures will remain at lows "below rates that best foster economic growth and price stability in the longer term." Even so, the Fed's options appear limited now that the fed funds rate is hovering essentially at zero, making money cheaper than it's ever been. The Federal funds rate has hemorrhaged in the past year and a half. In September 2007, the Fed cut the target for the rate 50 basis points to 4.75 percent — the first cut in four years. It has been bleeding since, in small 50 basis point- and slightly larger 75 basis point-increments. Some hesitation came out of the FOMC in June 2008, as worries that the rate — then at 2 percent — would fall much further, triggering inflation. October proved to be another month of bloodletting, with two swift 50 basis point reductions, bringing the rate down to 1 percent, where it had lingered through November before finally being slashed to it's zero-to-0.25 range. “The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth,” Fed chairman Ben Bernanke said in October. Write to Diana Golobay at email@example.com.