The Federal Reserve is prolonging its efforts to stimulate the economy.
The central bank’s monetary policy committee maintained its promise that it would keep short-term interest rates near zero for a “considerable time” in its statement following a two-day meeting Wednesday, confounding some analysts’ expectations that it would move toward an earlier schedule for the first rate increases since the 2008 financial crisis began.
As expected, the statement also included a note that the Fed’s monthly purchases of Treasury and mortgage-backed securities would be reduced from $25 billion to $15 billion in October. The statement also confirmed that the Fed would end the bond purchases at its next meeting.
With its nearly two-year quantitative easing program winding down, the Fed’s zero-rate policy has become the Fed’s main tool for easing monetary conditions. Before Wednesday’s meeting, surveys of economists and bond market prices suggested that the first rate increases were anticipated in mid-2015.
Two members of the Fed’s monetary policy committee voted against the decision — Federal Reserve Bank of Dallas President Richard Fisher and Philadelphia Fed President Charles Plosser, known as two of the more “hawkish” members of the committee. Fisher, whose “no” vote was new, dissented on the grounds “that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the committee’s stated forward guidance.”
Federal Reserve Chairwoman Janet Yellen is scheduled to give a press conference in Washington later Wednesday afternoon.
Despite the decision to keep the promise to keep interest rates near zero for a “considerable time,” Fed officials also slightly raised their projections for future interest rates in projections released alongside the policy announcement.
Fed members also lowered their projections for growth and inflation over the course of the next few years. They see gross domestic product growth coming in at between 2 and 2.2 percent in 2014, and 2.6 and 3 percent in 2015, both slightly lower than estimated in the most recent release in June. Inflation is expected to remain low through 2014, ranging from 1.5 to 1.7 percent by the end of the year before picking up slowly.
