FOMC Determines the Fate of Long-term Interest Rates

March 16, 2012 at 2:15 PM

In a press release by the Federal Reserve about the Federal Open Market Committee (FOMC) they released further information about the status of long-term interest rates. The FOMC meets 8 times a year in the months of January, March, April, June, July, September, October, and December.

According to the committee, “Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated”. The housing market has not rebounded like they had hoped and strains in this area of economic growth will continue to slow until situations improve.

According to the report, they feel that the strains in the global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. While it seems to appear that the Fed is more concerned with the economy getting worse again and where inflation will be, they are taking measures to keep federal funds rate low through 2014.

“The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.” In essence, they are buying bonds that have longer maturities and buying them in greater numbers. It is their policy to reinvest payments from his holdings and rolling over maturing Treasury securities at auction.

Their plans include a regular review, as announced in September, of the size and composition of where they have their holdings and adjust those as appropriate to promote a stronger economic recovery to help price stability.

Voting for the FOMC monetary policy actions were: Ben S. Bernanke, William C. Dudley, Elizabeth A. Duke, Dennis P. Lockhart, Sandra Pianalto, Sarah Bloom Ranskin, Daniel K. Tarullo, John C. Williams, and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

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