Federal Reserve continues low interest rate

by M. Ulric Killion

Federal Reserve System headquarters, Washington, DC; Photo by M. Ulric Killion. 

In Washington, on April, 28, 2010, the Board of Governors of the Federal Reserve met and while confirming an earlier assessment of the Federal Open Market Committee also reaffirms a commitment to a low interest rate. The Board of Governors, in its April 28, 2010 public statement, announced: “The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability” (FOMC Statement, April 28, 2010).

In other words, for the Board of Governors, though admittedly not a unanimous consensus, generally key economic indicators not only substantiated earlier 2010 data, which were the indicators available to the Federal Open Market Committee in March, but also present an optimistic picture for continuing economic recovery.

The actual April 28, 2010 vote on the adopted FOMC monetary policy action would have been unanimous except for the dissenting vote by board member Thomas M. Hoenig. According to the April 28 press release, Hoening voted against the FOMC monetary policy action because he “believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.”

Hoenig’s reservations or pessimism would not carry the day, however. This is because the other board members, such as Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh voted for the FOMC monetary policy.

Additionally, according to the FOMC Statement, and reflecting what these board members perceived as optimistic economic indicators, “the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.”

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2010.