The Federal Open Market Committee (FOMC) statement, released Jan. 29, explained the Federal Reserve’s decision to maintain the federal funds rate at a target range between 4-1/4 to 4-1/2 percent.
The FOMC pointed to indicators suggesting a continued expansion of economic activity at a steady pace and stable labor market conditions with relatively low unemployment. However, the committee also observed that inflation is still somewhat elevated, as it has noted routinely in its statements.
“The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the FOMC wrote. “The committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate.”
To support its commitment to supporting maximum employment and returning inflation to its 2 percent objective, the FOMC plans to continue to reduce its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.
In addition to maintaining the existing target rate, the FOMC instructed the Fed’s Open Market Desk to take the following actions:
- “Conduct standing overnight repurchase agreement operations with a minimum bid rate of 4.5 percent and with an aggregate operation limit of $500 billion.
- “Conduct standing overnight reverse repurchase agreement operations at an offering rate of 4.25 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 $25 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 the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage‑backed securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding.
- “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.”
The FOMC also reiterated its commitment to carefully assessing incoming data, the evolving market outlook, and the balance of risks when determining the extent and timing of potential future adjustments to the federal funds target rate.