The Federal Reserve on Wednesday announced it will keep the federal funds rate within a zero to 0.25% target range at least through the end of 2014, citing unchanged economic conditions since the Federal Open Market Committee met in April.
“The committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually,” the rate-setting panel said in a statement issued at the conclusion of a two-day meeting in Washington.
The unemployment rate will continued to decline slowly, and “strains in global financial markets continue to pose significant downside risks to the economic outlook,” the statement said.
The committee also decided to continue its Operation Twist policy of extending 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. “This should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” according to the statement.
Wednesday’s announcement “was somewhat anticlimactic,” said David Hillmeyer, vice president and senior portfolio manager for fixed income at Delaware Investments, in an interview. “The Fed is trying to use unconventional tools, and I think they’re running up against a wall here.”
“Domestically, things aren’t that bad. For all the global uncertainty, I think you need to save the bigger bullets. The world is fragile.”
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.