The Federal Reserve on Tuesday announced it will keep the federal funds rate within a zero to 0.25% target range for at least two years, expecting “moderate economic growth over the coming quarters” and a gradually declining unemployment rate.
It also plans to continue reinvesting principal from its securities holdings, according to a statement issued after the Federal Open Market Committee meeting in Washington.
Markets jumped following the Fed announcement. The Dow Jones industrial average closed up 217.97, or 1.68%, at 13,177.68; the S&P 500 rose 24.87, or 1.81%, closing at 1,395.96; and the Nasdaq composite was up 56.22 , or 1.88%, to close at 3,039.88. All numbers are preliminary.
Josh Feinman, chief global economist for DB Advisors, Deutsche Bank's institutional asset management business, noted the panel's comment that “strains in global financial markets have eased” but still pose downside risks. “I think they're feeling a little better about that, particularly Europe,” Mr. Feinman said in an interview. “The risk of a real financial meltdown there has receded, but the prospect for growth for Europe remains pretty challenged.”
Nine of the 10 committee members voted to keep what they called “exceptionally low levels” for the federal funds rate through late 2014, while Richmond Federal Reserve Bank President Jeffrey Lacker disagreed.
“It will be interesting to see if things get better, and how much that will cause them to change their forecast,” Mr. Feinman said. “It would be shocking if between now and 2014 nothing changes. This is a conditional forecast. They're not locking in to do anything.”
FOMC meets eight times each year. The next meeting is April 24-25.