The Federal Reserve's decision to unanimously vote to keep the fed funds rate in the range of 0 to 0.25% comes as no surprise given the magnitude of the recession. As always, policymakers released a more detailed statement regarding the economy and recent actions taken to support economic activity.
For the most part, the Federal Open Market Committee (FOMC), which is the arm of the Fed that decides monetary policy and interest rates, made just small adjustments in its commentary. Fed officials just barely bumped up the assessment on the economy, noting that "household spending has shown signs of stabilizing" and the "outlook has improved modestly since the March meeting."
But the Committee remains concerned that inflation could fall to undesirable levels, and it reiterated that it will "employ all available tools" to promote a recovery and preserve price stability.
One item traders were looking closely at was whether the Fed would alter last month's decision to buy up to $300 billion of Treasury securities. Those hoping for new purchases or any details were disappointed as the Fed stood by its prior decision, and Treasury prices reacted negatively.
The Federal Reserve has taken extraordinary measures to prevent the worst recession in over 50 years from becoming our first depression since the 1930s. Fed Chief Ben Bernanke is probably the foremost expert on the causes of the Great Depression, and so far, the Fed can claim success.
But an eventual economic recovery presents Bernanke with a new challenge: How to carefully remove excess stimulus and prevent a new round of inflation from materializing without creating new turmoil in the bond markets.
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