The Federal Reserve on Tuesday left its target on short-term interest rates unchanged, but offered a glimpse of hope that the economic recovery may be gaining steam.
In leaving the fed funds rate in a range of 0-0.25%, as expected, the Fed said “the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually.” While not a ringing endorsement of current conditions, it is a bit more bullish than previous comments accompanying the Federal Open Market Committee decisions.
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The central bank also noted, however, that one area of the economy that continues to struggle is housing. “Investment in nonresidential structures is still weak, and the housing sector continues to be depressed,” the Fed said.
On a day when Treasury yields are plummeting – the result of growing concerns over the situation in Japan – the Fed also said it is not overly concerned about inflation.
“Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.”
While noting that energy and commodity prices in general have been on the rise, the Fed said it expects those increases to be short-lived. It will also continue its so-called QE2 program in which it reinvests principal payments from its securities holdings, and will still buy $600 billion of long-term Treasurys by the end of the second quarter.
“The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability,” the Fed said.
The central bank made no mention of the disaster impacting Japan.