The Federal Open Market Committee's two-day meeting concluded this afternoon, with no change in rates and virtually no change in their statement. The Fed did mention the job market "is beginning to improve," that "growth in household spending has picked up recently," and that housing starts "have edged up but remain at a depressed level."
Sometimes I think the only sensible one of the bunch is the Federal Reserve Bank of Kansas City president Thomas Hoenig, who again dissented. Hoenig feels the continued use of the "exceptionally low levels of the federal funds rate for an extended period" phraseology could lead to bubbles and inflation at worst, or at least just limits "the Committee's flexibility to begin raising interest rates modestly."
As stated in my last post, a tweak to the statement was certainly in order (it didn't happen) and removing the word "exceptionally" would not limit the flexibility to boost rates modestly when needed. Is the Fed worried that raising rates from 0.25 percent to 0.5 percent, 0.75 percent, or even 1 percent is somehow going to bring the whole economy down? I'm not convinced the economy is springing back to life, not with household income growth essentially nonexistent, credit tight, and consumers still heavily leveraged and undersaved. But does the economy still warrant a near zero rate on overnight borrowing? How much more pain do savers, retirees, and other income dependent investors need to endure?