As was expected, the Fed held steady on Tuesday. No policy changes were announced in Tuesday's FOMC statement. The late-2014 commitment for zero rates continues with the same sentence that economic conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014." The FOMC statement acknowledged that the "economy has been expanding moderately". However, it provided several reasons to justify its zero rate policies and to keep alive the possibility of more stimulus like QE3 later this year:
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.
As in January, the only dissent in the FOMC vote was Jeffrey M. Lacker "who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014."
How Can We Prevent the Fed Pledging Zero Rates Until 2016? 2018?
I worry that the Fed will keep extending its zero rate commitment. It started at mid-2013 in the August FOMC statement. That was extended to late-2014 in January even when there was positive economic news. If the growth in the economy or employment has any setbacks, how quick will the Fed extend out this to 2016? or 2018? Because of factors independent of monetary policy, unemployment may remain high for a decade or more. With a dual mandate, the Fed may feel that it is required to keep rates near zero as long as unemployment remains high. Ending the Fed's dual mandate could reduce this extreme commitment to zero rates. That's why I like the Sound Dollar Act, a bill that was introduced last week by Congressman Kevin Brady. You can read about this bill at Kevin Brady's House webpage.
After the last Fed meeting, I had discussed some possible petitions. As I described in this forum thread, an online petition to show support of this bill seems to make the most sense. I have not yet created any petition. Unless anyone has a better idea for a petition, I'll get an online petition started soon to support this bill. So please leave a comment if you have a petition idea or if you like the idea of an online petition supporting Kevin Brady's bill.