Expressing optimism about third-quarter expansion activity
within the U.S. economy, the Federal Reserve announced interest rates will
remain at their current levels for the time-being. The announcement came
following the latest meeting of the Federal Open Market Committee (FOMC).
Employment rates are increasing, albeit at relatively modest
rates, but inflation continues to rise, making for a tenuous economic climate
which warrants heightened scrutiny from the committee. The FOMC also noted
while U.S. banks appear in good shape, the average American may be experiencing
more financial stress under current conditions.
“The U.S. banking system is sound and resilient,” the FOMC
said in a statement. “Tighter financial and credit conditions for households
and businesses are likely to weigh on economic activity, hiring, and inflation.
The extent of these effects remains uncertain. The committee remains highly
attentive to inflation risks.”
The committee restated its target of no more than 2 percent inflation
each year and to maintain the current rate between 5-1/4 percent and 5-1/2
percent.
The Fed Board of Governors voted unanimously to maintain the
interest rate on funds received by the Fed at 5.4 percent. The board also voted
to direct the New York Fed’s Open Market Desk to do the following:
·
“Conduct standing overnight repurchase agreement
operations with a minimum bid rate of 5.5 percent and with an aggregate
operation limit of $500 billion.
·
“Conduct standing overnight reverse repurchase
agreement operations at an offering rate of 5.3 percent and with a
per-counterparty limit of $160 billion per day.
·
“Roll over at auction the amount of principal
payments from the Federal Reserve's holdings of Treasury securities maturing in
each calendar month that exceeds a cap of $60 billion per month. Redeem
Treasury coupon securities up to this monthly cap and Treasury bills to the
extent that coupon principal payments are less than the monthly cap.
·
“Reinvest into agency mortgage-backed securities
(MBS) the amount of principal payments from the Federal Reserve's holdings of
agency debt and agency MBS received in each calendar month that exceeds a cap
of $35 billion per month.
·
“Allow modest deviations from stated amounts for
reinvestments, if needed for operational reasons.
·
“Engage in dollar roll and coupon swap
transactions as necessary to facilitate settlement of the Federal Reserve's
agency MBS transactions.”
In a related move, the board also unanimously approved the
establishment of the primary credit rate at the existing level of 5.5 percent.
“In assessing the appropriate stance of monetary policy, the
committee will continue to monitor the implications of incoming information for
the economic outlook,” the FOMC stated. “The committee would be prepared to
adjust the stance of monetary policy as appropriate if risks emerge that could
impede the attainment of the committee’s goals.”
The committee noted its future recommendations will account
for a wide range of information, including readings on labor market conditions,
inflation pressures and expectations,
and financial and international developments.