Mildly Optimistic Fed Stands Pat on Interest Rates
The Fed was slightly more upbeat on the economy than it was during its last meeting in December, noting that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate and business spending on equipment and software appears to be picking up, the Federal Open Market Committee said.
"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," the FOMC said. "With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time."
Slowly Closing Programs
Economists, on average, are not anticipating a rate hike until around the November elections, according to The Wall Street Journal Forecasting Survey. As expected, the Fed gave no hint as to its so-called exit strategy to gradually reduce liquidity from the financial system, but it did continue to dismantle programs put in place to restore the functioning of the credit markets.
In its latest move on that front, the Fed said it will finish winding down the Term Auction Facility, which auctions credit to banks, by the first week of March. The Fed also affirmed plans to close several other programs, including the Commercial Paper Funding Facility and the Primary Dealer Credit Facility, on Feb. 1.
The Senate is expected to confirm Ben Bernanke for a second term as Fed chairman Thursday, though it will likely be by a narrow margin.