Fed Tapers $10 Billion Again, Federal Funds Rate Unchanged

The Federal Open Market Committee (FOMC) released its latest statement on the economy today, and it seems to be sticking to its plan.

Due to "sufficient underlying strength in the broader economy," the Fed will, once again, cut a collective $10 billion off its monthly asset-purchase program, starting in May. A $5 billion haircut for mortgage-backed securities puts the Reserve's new monthly rate at $20 million, while its longer-term Treasury securities purchases drop down to $25 billion per month.

The main highlight of the announcement, however, was the FOMC's decision to keep the federal funds rate target range at 0.0% to 0.25%. The federal funds rate is the interest rate at which large financial institutions lend and borrow money from their balances with the Federal Reserve, which affects the interest rates for all loans. By keeping the federal funds rate low, the Federal Reserve aims to promote borrowing money and discourage saving it, a recipe for increased economic activity.

Today's announcement noted that, in determining how long to keep current rates at near-zero levels, "the Committee will assess progress --both realized and expected -- toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments."

The FOMC noted, however, that it expects to maintain the current range for "a considerable time" after its asset purchase program tapers off entirely.


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