Fed Holds Rates Near Zero


WASHINGTON (TheStreet) The Federal Reserve's policymaking arm offered no surprises Tuesday as it kept the target fed funds rate unchanged at near zero.

Fed watchers expected the Federal Open Market Committee's rate announcement to be nearly identical to its last statement, and that's what they got. The FOMC voted to keep the target interest rate at zero to 0.25%, citing continued economic weakness, even as it acknowledged the ongoing recovery.

The FOMC also maintained language promising to keep interest rates low "for an extended period," which may have come as a mild surprise to some who thought the Fed would begin prepping investors for an eventual rate increase by slightly altering the phrase.

Kansas City Fed President Thomas Hoenig, as he was in the FOMC's last statement, the sole vote against the policy action. The statement included Hoenig's specific reasons for opposing the actions, saying he "believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability."

Noting moderate growth to household spending, the FOMC acknowledged the consumer "remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit."

The FOMC said business spending on equipment and software has risen "significantly" but that investment in nonresidential construction and housing starts remain weak. The FOMC pointed to employers' continued reluctance to create jobs as also hampering growth.

So far, economic data for February hasn't been as negatively impacted by severe weather as some economists initially feared. Last week, retail sales exceeded expectations with growth of 0.3%, although the University of Michigan's initial read on March consumer sentiment of 72.5 disappointed forecasts for a reading of 73.8. On Monday, both industrial production and capacity utilization showed surprise growth during the month.

However, significant job creation continues to elude the market.

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