Steady as she goes for Fed on interest rates
By Rob Kozlowski | August 1, 2012 3:34 pm
Federal Reserve building Washington D.C.
The Federal Reserve on Wednesday announced it will keep the federal funds rate at the zero to 0.25% target range at least through late 2014, citing a deceleration in economic activity during the first half of the year.
“The committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually,” the Federal Open Market Committee announced in a statement after its two-day meeting.
Also, the committee anticipates the unemployment rate will decline slowly and global financial markets will continue to “pose significant downside risks to the economic outlook.”
While there were no major changes in the Fed's stance from its June 20 meeting, there is still a strong signal that changes might occur as soon as next month because the committee stated it will “provide additional accommodations as needed,” according to Zach Pandl, senior interest-rate strategist with Columbia Management.
“I don't think markets should be too discouraged by this outcome. It could be one more month before they provide more easing,” said Mr. Pandl.
James Paulson, chief investment strategist at Wells Capital Management, said there could be a positive that the Fed didn't take any action at this time.
“We might come away from this as a first show of confidence from the Fed, that this could be the first time the Fed didn't have to intervene after a slow patch,” Mr. Paulson said.
The committee also said it would continue its Operation Twist policy through the end of the year. The policy extends the average maturity of its securities holdings, by purchasing Treasury securities with remaining maturities of six years to 30 years and selling an equal amount of Treasury securities maturing in three years or less.
