McBride: No Action from FOMC Indicates More Stimulus Ahead
The Federal Reserve’s Open Market Committee announced Wednesday it will keep the target range for the federal funds rate at 0% to 0.25%.
Additionally, the FOMC said it anticipates that economic conditions are likely to warrant “exceptionally low levels for the federal funds rate at least through late 2014.”
By taking no action, the Fed has indicated additional stimulus measures are likely in the coming months, said Bankrate.com Senior Financial Analyst Greg McBride. However, McBride said he’s doubtful stimulus measures will have much effect.
“They can do a lot of things, but the question is, will any of it work,” he said. “The best ideas were used up a long time ago.”
The problem isn’t Fed policy, McBride said, but a lack of consumer and business confidence.
“It’s not that people are sitting back lamenting that interest rates aren’t low enough,” he said. “People just aren’t confident. The Fed can do things that facilitate low interest rates or the availability of credit, but they can’t do anything about the demand side of the equation.”
Economic activity decelerated somewhat over the first half of this year, the committee said in a release. The unemployment rate remains elevated, the pace of increasing household spending has cooled, and despite some further signs of improvement, the housing sector remains depressed.
Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and long-term inflation expectations have remained stable, the Fed said.
The committee said it expects economic growth to remain moderate over coming quarters and then to pick up very gradually, which means the unemployment rate will decline only slowly toward acceptable levels. Strains in global financial markets continue to pose significant downside risks to the economic outlook.