The Federal Reserve on Wednesday kept the federal funds target rate at zero to 25 basis points in an effort to promote economic recovery and control inflation.
The Fed’s Open Markets Committee, which sets the rate, noted in a statement that economic conditions will likely warrant low fund levels for an extended period.
The committee also announced that it will complete its purchases of $600 billion of long-term Treasury securities by the end of June.
Economic recovery has, in part, been hampered by factors that are likely to be temporary, such as high food and energy prices as well as supply chain disruptions brought on by the earthquake in Japan in March, the Fed said in the statement.
Federal Reserve Chairman Ben Bernanke said in an afternoon news conference that supply problems have led to increases in auto prices and that higher energy prices have passed through to sectors such as the airline industry, but added that “it’s reasonable to think that core inflation will fall back to mandate-consistent levels.”
According to the Fed statement, “Household spending and business investment in equipment and software continue to expand. However, investment in non-residential structures is still weak, and the housing sector continues to be depressed. Inflation has picked up in recent months, mainly reflecting higher prices for some commodities and imported goods, as well as the recent supply chain disruptions. However, longer-term inflation expectations have remained stable.”
Mr. Bernanke said he believes the economic slowdown is “at least partly temporary and we’ll see greater growth going forward.” He urged Congress to act urgently in addressing the country’s medium- to long-term deficit problem.
Gregory Whiteley, government portfolio manager at DoubleLine Capital, said in a telephone interview that the information in the announcement was expected and is already reflected in bond prices.
“When things will change (from the Fed) is not clear, so I think we should expect more of what we are seeing — a bit of a pickup in inflation and low range-bound interest rates,” he said.
He said a change in the Fed policy will require further improvement in the labor market.