Fed keeps on keepin' on

The Federal Reserve’s Open Market Committee met today, and it seems they’re keepin’ on keepin’ on. At least according to their release:

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 for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.

Now, this is despite recognizing that the economy is not growing as fast as they’d like, inflation is not  at the level they’d like, and employment numbers are nowhere near where they’d like. But, they do see progress: “The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.”

Now, it should be noted that the Federal Reserve has already performed quite a lot of stimulus in the past couple years. They’ve poured $1.25 trillion dollars into mortgage securities to keep mortgage interest rates low, the cash from which they’re slowing moving into Treasuries to keep the federal funds rate below .25%. In effect, the Fed has pumped more cash into the economy than any stimulus program to date, and it is reasonable to expect they’d be nervous that although inflation is low now, if the economy picks up, all that cash in the system could drive inflation rapidly.

So, while it is a little disappointing in the near term, this shouldn’t really be seen as a non-move. If you’re pushing a boulder with dynamite, just because you’re not shifting to using hydrogen bombs doesn’t mean you’re not doing anything.