NEW YORK — The Federal Open Market Committee decided to leave its target rate unchanged at 0.0-0.25% and said "downside risks to the economic outlook have increased" and economic conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through mid 2013."
It was a divided FOMC making the decision. Dallas Fed president Richard Fisher, Minneapolis Fed president Naryana Kocherlakota and Philly Fed president Charles Plosser didn't want the dated commitment, preferring the previous "extended period" language.
In its statement, the FOMCs said that "economic growth so far this year has been considerably slower than the Committee had anticipated." It also expects a "somewhat slower pace of recovery over coming quarters" than it did at the last meeting.
In the wake of market turmoil, the Fed was facing demand for confidence-building measures.
Chairman Ben Bernanke has laid out in his last news conference and Congressional testimony, four additional tools left in the Fed's kit. First, a firm commitment on the time it would keep the fed funds rate near zero. Second, reducing the 0.25% interest rate it pays on banks' excess reserves on deposit at the Fed. And third, buying more Treasury securities (QE3) or, fourth, moving its portfolio toward longer maturities.
Each has associated risks and many economists doubt whether any would give much of a boost to the economy. Today the FOMC chose the least strong option.
Bernanke will have another chance later this month to weigh in on the future of monetary policy at the annual Jackson Hole Kansas City Fed conference.
The Fed chairman had no news conference after today's decision. He holds those only four times a year, after two-day meetings at which the FOMC members present their new economic forecasts.
