Economy brightens, but not enough for the Fed to raise rates
By Daniel P. Ray | Published: March 13, 2012
Despite a cheery jobs report, the Federal Reserve voted to maintain its low-interest rate course Tuesday, a decision that means credit card holders won't see any Fed-generated rate hikes hit their variable rate cards anytime soon.
The Fed's rate-setting Open Market Committee decided to keep the target rate for the key federal funds rate at 0 to 0.25 percent. Most credit cards in the United States are variable rate cards tied to the prime rate, which in turn is tied to the federal funds rate. So any increase in the fed funds rate will get passed through to consumers as a rate hike.
Not this time, said the committee in its post-meeting statement.
"The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually ..." the committee said. "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" to foster full employment and fight inflation.
The vote was no surprise. At its January meeting, the committee said it intended -- barring economic surprises -- to hold interest rates at "exceptionally low levels" at least through late 2014. The Fed holds down rates during times of economic trouble to stimulate the economy. Since that meeting, major economic signals have been mixed. On one hand, gas prices spiked, poking a new hole in Americans' household budgets. On the other, a favorable jobs report came out Friday, in which the Labor Department reported 227,000 jobs were added -- a sign of economic recovery.
On balance, the committee decided the news wasn't good enough or bad enough to shake the committee off its previoiusly announced course.
The vote was 9-1. The dissenting vote came from Jeffrety M. Lacker, president of the Federal Reserve Bank of Richmond, who doubted that economic conditions would warrant keeping the fed funds rate down through late 2014.
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