By Richard Roth, J.D., Editor, the Federal Banking Law Reporter, Bank Compliance Guide, Bank Digest; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis
The Federal Open Market Committee decided at its two-day meeting ending Jan. 30, 2013, to make no changes in its current economic policy, leaving all of its stimulus measures in place. Specifically, the committee left the federal funds rate target at a range of 0 to .25 percent and said that it intended to continue purchasing agency mortgage-backed securities and Treasury securities.
According to the FOMC, weather and other passing factors caused a pause in economic growth since its December 2012 meeting. Global financial market strains have eased, the FOMC said, but still threaten growth. However, employment, household spending and business investment all have shown growth, the committee said, and over the medium term, inflation is expected to remain at or less than the 2-percent level that is considered desirable.
The committee said that it will continue its strategy of buying $40 billion of agency mortgage-backed securities and $45 billion of longer-term Treasury securities each month. It also will continue to use payments generated by existing holdings to buy additional mortgage-backed securities and to roll over maturing Treasury securities. The December meeting projections were repeated as well. The committee said it plans to maintain the low fed funds rate as long as unemployment remains higher than 6.5 percent, medium-term inflation expectations are no higher than 2.5 percent and longer-term inflation expectations remain “well anchored.”
New committee member Esther L. George, President of the Federal Reserve Bank of Kansas City, voted against the action out of concern that continued economic support risks future economic and financial imbalances and could risk long-term inflation.
Financial Services Committee Chairman Jeb Hensarling, R-Texas, also expressed concern, stating that there are “limits to what monetary policy can achieve. Monetary policy cannot and should not replace sound fiscal policy and I fear the risk of high inflation is great if this policy is not reversed in a timely manner.”