Our smarty-pants friends at the Federal Reserve announced today that they will once again hold its Fed funds rate at the 0 percent to 0.25 percent range. (What the heck is the Fed funds rate and why should I care?)
The following is an official press release from the Fed regarding its decision today and a translation (for the rest of us) from our Chief Quizzologist:
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FEDERAL RESERVE Press Release
Release Date: April 28, 2010
Fed: For immediate release
Chief Quizzologist: Now
Fed: Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.
Chief Quizzologist: Dang. So much going on in this paragraph, we need to go to bullet points:
- Since March, the economy is getting better.
- People are spending more money, but the lack of jobs, raises and credit are holding them back.
- Employers are nervous about adding new jobs.
- Builders still aren’t building many new cribs.
- Last sentence – the most important in the paragraph – tells us things will get better, slowly, but they will get better. Yay.
Fed: With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.
Chief Quizzologist: When people don’t have jobs and factories aren’t running at full steam – nobody can raise prices.
Fed: The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
Chief Quizzologist: We, the Fed, didn’t raise short term rates and we don’t think we’ll be raising short term rates anytime soon because, well, the economy is still having problems.
Fed: In light of improved functioning of financial markets, the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.
Chief Quizzologist: When the credit markets collapsed long, long ago in 2008, banks and other financial institutions closed their doors and stopped lending. So, Uncle Sam put on his banker hat and started dolling out loans directly to businesses and others. Uncle Sam is taking off the banker hat now that the banks have put their big-boy pants back on and have started to lend.
Fed: Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.
Chief Quizzologist: Everyone did not agree! Thomas Hoenig once again voted to raise short term rates.
