Janet Yellen and the Federal Reserve’s Open Market Committee (FOMC) have decided to keep the markets guessing for even longer. The zero interest rate policy has been left as is and unchanged, with the Fed Funds rate remaining at a target of 0.00% to 0.25%. This policy has lasted for so long now that it has created problems for pensions, money market funds, and savers of all sorts. The main issue seems to be that the Fed is monitoring developments overseas and globally, and another issue is that economic forecasts have been adjusted.

24/7 Wall St. has noted in recent days, perhaps what will matter more than the super-low interest rates is the Fed’s $4.5 trillion balance sheet. As a reminder, the FOMC already gave a path to normalization for what investors and economic watchers should expect. This was from the Monetary Policy Normalization tab on the Federal Reserve website:

In response to the financial crisis, the Federal Reserve promoted economic recovery through sharp reductions in its target for the federal funds rate and through purchases of securities. When economic conditions and the outlook for future economic activity and inflation warrant, the Federal Reserve expects to start the process of normalizing the stance of monetary policy and the size and composition of its balance sheet. The timing and pace of policy normalization will be determined so as to promote the Federal Reserve’s statutory mandate of maximum employment and price stability.

Below is the important data from Thursday’s FOMC decision on interest rates — why they decided not to hike interest rates:

Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. Nonetheless, the Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Only one vote was cast to raise the Fed Funds target to 0.25%, and that was from Jeffrey Lacker.

Shortly before the 2:00 pm Eastern Time decision, the S&P 500 was up 5.90 at 2001.21 and the DJIA was up 45 points at 16.785.11; and the 10-year Treasury yield was 2.27%.

24/7 Wall St. would like to leave you with one final reminder. While this would take a long time to occur and to be felt, a full percentage point rise in all interest rates throughout the yield curve, with $18 trillion in debt, would increase the annual interest payments (debt servicing costs) by $180 billion.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.