The Federal Reserve on Tuesday kept the federal funds target rate at zero to 25 basis points.
“Overall conditions in the market appear to be improving” and the “economic recovery is on firmer footing,” the Federal Open Market Committee, which sets the rate, said in a statement.
Household spending and business investment in equipment and software continue to expand, the Fed stated, but investment in non-residential structures is still weak and the housing market remains depressed.
The Fed “continues to anticipate that economic conditions including low rates of resource utilization, subdued inflation trends, and stable inflation expectations are likely to warrant exceptionally low levels for the federal funds rate for an extended period,” according to the statement.
James McDonald, senior vice president and chief investment strategist with Northern Trust, said in a telephone interview that while the Fed has modestly upgraded its view on growth and cited some improvement in labor markets, it is not sufficient to make a change in the interest rate.
“But the elephant in the room that wasn’t discussed was the risk of exogenous shock to the global economy,” he said. “Whether oil price spikes or the Japanese earthquake and nuclear power disaster or European sovereign credit crisis, they are going to keep rates lower than they would otherwise. It would be shocking to me if this was not part of their committee discussion, but it doesn’t typically make the minutes.”
“The Japanese stock market was down 17.5% in three days,” he said. “That has to have been discussed at the Fed.”