Fed Statement Holds Few Surprises
Markets react favorably to announcement.
Bryce Knorr
Published: Mar 16, 2010
The Federal Reserve revealed few changes in its monetary policy Tuesday afternoon, keeping its target for interest rates near zero and making no significant alterations to its view of the economy.
Markets reacted favorably to the announcement, which was widely expected. In fact, Wall Street appeared to be moving in lockstep into the Fed statement, enjoying a "Goldilocks" rally - neither too hot nor too cold - which buoyed a range of markets.
The Fed statement was again not completely unanimous, with one governor dissenting.
The central bank kept its target for Federal Funds - the rate banks borrow from each other to meet reserve requirements – between zero and a quarter of 1%. That has effectively given banks free money to lend, as the Fed tries to keep the economic recovery on solid ground.
The Fed's policy statement contained a few minor shifts in language, changes eagerly digested by investors. In its first statement since January the central bank added a few details to its description of the economy. While noting "the labor market is stabilizing" the statement also indicated that "investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls."
And, while the bank expects to keep its Fed Funds target at historically low levels for "an extended period," it tweaked its language about inflation slightly. While noting "inflation is likely to be subdued for some time," it also for the first time hinted at the need to fight inflation at some point, by saying it would act as necessary to promote "price stability."
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