The Federal Reserve again appeared unwavering in its belief that the sputtering pace of the economic rebound necessitates an "extended period" of historically low interest rates. The Fed's Federal Open Market Committee left the target for the federal funds rate at a range between 0% and 0.25% following its policy meeting Tuesday.

The Fed's statement again acknowledged the recovery is stalling somewhat after months of holding a more optimistic view. Still, it has little room to maneuver on rates because of how low they already are. And though the Fed announced plan to purchase another $5 billion in Treasury notes earlier in the week, a move designed to help keep longer-term rates low as well, an announcement of additional purchases did not come in the Fed's Tuesday statement. Fed officials did leave open the door to do so at a later date, pending in part on employment figures in the upcoming weeks and months, a growing concern.

The Fed also hinted at growing concern regarding unemployment's subsequent impact on consumer spending/confidence, anemic conditions in commercial real estate and business spending that, while growing, is doing so at a slower pace than earlier this year. Committee member Thomas Hoenig continued to object with leaving the rate unchanged, voting against doing so in favor of an increase to enable the Fed to make a future downward adjustment if and when its impact is more badly needed. Hoenig, contrary to most of the voting membership, also believes inflation indeed should be considered more of a looming threat sooner than his colleagues believe.

Meanwhile, as a number of experts have started beating the drum that extended low rates could lead to deflation. Still, such a scenario remains though unlikely unless consumer plummets in upcoming months.

Brian Shappell, NACM staff writer


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