About today's statementToday's FOMC statement described the economy as growing, but not quickly enough. Given the slow pace of growth, and the fact that the FOMC seems satisfied that inflation is under control, the Fed will continue the stimulative measures that have been in place for the last couple years: keeping interest rates near zero on the short end, and purchasing long-term Treasury and mortgage securities to help hold longer rates down. Curiously, today's FOMC statement did not acknowledge the looming fiscal cliff deadline. This seems a missed opportunity for the Fed to weigh in on the importance of a constructive compromise, and at minimum it would have been appropriate for the Fed's statement on the outlook for the economy to acknowledge the tremendous uncertainty that exists until the fiscal cliff situation is resolved. The FOMC even issued updated economic projections for the coming years that represent little change from the previous projections. This seemed to suggest an assumption that the fiscal cliff standoff will be resolved satisfactorily, and Fed Chairman Ben Bernanke confirmed this notion in a news conference following the meeting. But he also added that, were the country to sail off the fiscal cliff, the Fed's tools would not likely be able to offset the effects.
Impact on the fed funds rateThe FOMC statement outlined an intention to keep the federal funds rate near zero -- specifically, between zero and 0.25 percent -- for the foreseeable future. Rather than talking in terms of a time-frame for continuing this policy, the statement focused on a goal of bringing unemployment down to 6.5 percent before contemplating a change in fed funds policy.
As always, the Fed notes that this low rate policy is contingent upon inflation remaining within acceptable limits.