Fed stays put on federal funds rate and purchases

The Federal Reserve Open Market Committee voted Wednesday to keep the federal funds rate at zero to 0.25% until the unemployment rate improves, and to continue monthly purchases of $85 billion in mortgage-backed and longer-term Treasury securities.

The committee members noted some positive signs of economic growth in the past two months, including in the labor market, household and business spending, and housing sector. As those conditions improve, “we may adjust the flow rate of (securities) purchases,” Chairman Ben Bernanke said.

Committee members also downplayed expectations that these policies will change as soon as the unemployment rate improves, despite a December decision to focus on that indicator. Noting that the unemployment rate would need to remain below 6.5% for a sustained period, “the committee expects a considerable period of time to pass” before making changes, Mr. Bernanke said at a news conference following the meeting. “We'll be looking for sustained improvement in a number of key indicators … across a range of indicators in a way that is taking place across the economy.”

“These are not triggers,” said Joshua Feinman, managing director and chief global economist for Deutsche Asset Management in the Americas, and a former Fed economist, in an interview. “They are necessary but not sufficient conditions.”

Zach Pandl, senior interest rate strategist with Columbia Management, was encouraged that committee members lowered slightly their average unemployment rate projection through 2015. “It is a subtle but important difference. They're hinting that they may stay on hold a bit longer. This is slightly positive news for the market,” Mr. Pandl said in an interview.