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From Banking and Finance Law Daily, May 1, 2013

FOMC Maintains Economic Policy; Federal Funds Rate Unchanged

By Thomas G. Wolfe, J.D.

At its meeting today, the Federal Open Market Committee (FOMC) made no changes to its current economic policy, stating that it will continue to purchase mortgage-backed securities and Treasury securities at its current pace and will maintain the federal funds target range of 0 to .25 percent. The primary credit discount rate, which is the interest rate charged for short-term credit extensions to depository institutions, also remains unchanged at .75 percent.

The FOMC indicated that the low target rate will be appropriate at least as long as the unemployment rate remains above 6.5 percent, inflation is expected to be at a rate of no more than 2.5 percent for the foreseeable future, and longer-term expectations for inflation are "well-anchored."

While information the FOMC received since it last met in March suggests that “economic activity has been expanding at a moderate pace,” the FOMC continues to “see downside risks to the economic outlook.”

House Chairman’s reaction. Following the FOMC’s May 1, 2013, announcement, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) stated, “Like a patient who has been administered too many antibiotics, the economy is less and less responsive to the Fed’s continued monetary stimulus.” In the Chairman’s view, “It’s time for the Fed to acknowledge the simple truth that the challenges facing our economy today cannot be solved by more monetary stimulus.”

Accordingly, Hensarling offered a different approach. “If the Fed wants to help the economy, it needs to adopt a more predictable, rules-based policy that aims for long-term price stability. That is the policy that will promote long-term economic growth,” he maintained.

IndustryNews: FOMC FinancialStability InterestUsury

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