FOMC to Hold Rates Near Zero for Two Years

This story appeared in Bank Digest.

The Federal Open Market Committee demonstrated significant concern about the economic outlook and pledged to hold the federal funds rate near zero “at least” through mid-2013, the first time the Fed's policy-setting committee put a time frame on their duration. “The FOMC now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting, and anticipates that the unemployment rate will decline only gradually” from the July level of 9.1 percent, the central bank's statement said. “Moreover, downside risks to the economic outlook have increased.”

The interest-rate action came with controversy, however, as Dallas Fed President Richard Fisher, Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles Plosser all dissented, objecting to the specific time reference, instead of the old language of holding rates low for “an extended period of time.” The last time there were three dissents against FOMC policy was in November 1992, under former Federal Reserve Chairman Alan Greenspan.

The Fed also indicated that it “discussed the range of policy tools available to promote a strong economic outlook recovery in a context of price stability,” and said it's prepared to employ the tools as appropriate.