Today, the Federal Open Market Committee decided to keep the federal funds rate unchanged at 0.00-0.25%, which was the expected result.  However, they did mention a further extension of the ‘extended period’ of low rates set forth a few meetings back—now to late 2014. 

As the economy is ‘expanding moderately’ (in their words), no mention was made of further quantitative easing, but ‘operation twist’ (extending the average maturity of securities on their balance sheet) is continuing.  Business fixed investment and, of course, housing and high unemployment remain primary concerns, and downside risks remain centered on the global economy/Europe.

An interesting side note, and apparently part of the ongoing effort to give better transparency into their decision-making process, is that the committee will begin publishing individual policymakers’ future projections for the fed funds rate.  Also, there have been discussion of releasing a specific inflation ‘target,’ such as 2% or so, but this was not done today. 

While we believe transparency is important, there is perhaps an equal risk of lessened flexibility to change course in coming quarters as needed and as conditions change.  It is important to remember that the Fed, as an institution, has a dual mandate—to maintain price stability as well as promote maximum employment.  This differs from central bank policies in many nations that focus on the former, while not the latter.  So, political issues are an important and inherent part in the process, so it is inevitable that one may take priority over the other as they feel it is warranted.  In this case, the Fed has shown a willingness to ‘keep their foot on the gas pedal’ with more easing, as higher economic growth has historically tended to result in improved employment.  Any other ramifications (such as inflation) will apparently be dealt with down the road.

Source:  Federal Reserve.