Fed Holds Rates Steady

by: Market Blog

By David Berman

The U.S. Federal Reserve left its key interest rate unchanged at its monetary policy meeting on Tuesday afternoon, but added key phrases about inflation in its statement.

The Fed continues to believe that the pace of the economic recovery has slowed in recent months and that housing starts remain at depressed levels. As for its key rate, it again said that "exceptionally low levels" are warranted "for an extended period."

However, the Fed adopted a slightly different position on inflation, adding a few lines. This time, the Fed ended its statement with: "The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

At its last monetary policy meeting, in August, the Fed left inflation out of its final statement.

As for other stimulative measures, the Fed was more brief this time around, leaving out mention of rolling over Treasury securities as they mature: "The committee also will maintain its existing policy of reinvesting principal payments from its securities holdings."

The market's reaction? The Dow Jones industrial average and the S&P 500 had been down slightly before the statement's release. Ten minutes after the release, the Dow was up 36 points, or 0.3%, suggesting that investors like what they see.

Disclosure: None