By MarketWatch
WASHINGTON (MarketWatch) — The Federal Reserve is very reluctantly and very slowly beginning to acknowledge that the economy is getting better, but policy makers aren’t yet ready to back off of their commitment to keep interest rates low for a very long time.
In the statement following its closed-door meeting Tuesday, the Federal Open Market Committee didn’t hint at any further moves to boost the economy, as some of its members want. Neither did the FOMC indicate that it would begin to tighten monetary policy any time soon, as another small faction desires. Read our full coverage of the Fed’s decision to stand pat.
Perhaps the most notable part of the FOMC statement was its nod to a stronger economy and to higher inflation, two factors that ought to be pushing the Fed toward withdrawing some of its extraordinary stimulus. Read the FOMC statement for yourself.
The economy is growing moderately, and the unemployment rate “has declined notably,” the FOMC said. At the same time, the Fed also recognized that petroleum prices have jumped. See Futures Movers for latest news on oil trading .
All things being equal, those two trends would mean the Fed should think about raising interest rates, or at least start to reduce the size of its balance sheet. It won’t, because the crisis in Europe is still a big problem that could slow the economy later. The fact that the housing market is still depressed is also a major factor in the Fed’s keeping its foot on the pedal.
On the other hand, the Fed is still sure that higher energy prices won’t lead to a permanent acceleration in inflation rates.
The Fed hasn’t closed the door on additional measures to stimulate the economy. Another round of quantitative easing is still possible this summer after Operation Twist comes to an end.
The Fed sees the economy strengthening, and energy prices jumping, but it doesn’t believe anything has really changed. The doves still rule the roost.
— Rex Nutting