FOMC Votes to Maintain Low Rates for an 'Extended Period'
The Federal Open Market Committee (FOMC) voted to maintain the target range for the federal funds rate at 0% to 0.25%. The board's decision comes on the belief that while there are some signs of economic recovery developing, financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad, the FOMC said in a statement released Wednesday at the conclusion of its June 22-23 meeting. The committee said housing starts remain at depressed levels and bank lending continued to contract in recent months. Higher levels may return, but recovery will be moderate. Household spending is up, but is still impacted by unemployment, modest income growth, lower housing wealth and tight credit. But prices of energy and other commodities are down, "underlying inflation has trended lower," the statement said, adding inflation is likely to be subdued for some time. In its decision to maintain the federal funds rate, the statement said the economic conditions will warrant the exceptionally low levels for an extended period. The only member of the 10-person committee to not vote in favor of the policy action was Thomas Hoenig, president of the Kansas City Federal Reserve Bank. According to the statement, Hoenig believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly. Write to Austin Kilgore.