Two camps emerged, with one arguing uncertainty about regulation and recently passed health-care reform had businesses skittish. Others said the job market was paralyzed by "mismatches between unemployed workers' skills and the needs of employers with job openings."
Officials concluded the economy "was operating farther below its potential than thought, that the pace of recovery had slowed in recent months, and that growth would be more modest during the second half of 2010 than they had anticipated."
As a result, the committee maintained the target range for the federal funds rate at between 0% and 0.25% and anticipated that economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
"Bottom line, the committee is walking a fine line between appearing desperate and appearing reassuring," says Fred Taylor, principal and cofounder of Denver-based Northstar Investment Advisors, LLC. "With so much uncertainty, no one wants to invest before the November elections. [Thomas] Hoenig was the only one who stuck his neck out."
To help support a recovery in a context of price stability, the Committee said it will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.
The Committee will continue to roll over Federal Reserve's holdings of Treasury securities as they mature.
Ben Bernanke, Chairman; William Dudley, Vice Chairman; James Bullard; Elizabeth Duke; Donald Kohn; Sandra Pianalto; Eric Rosengren; Daniel Tarullo; and Kevin Warsh were all 'Yea' votes for this action.
Voting against the policy was Thomas Hoenig, who judged that the economy was recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limited the Committee's ability to adjust policy when needed.
In addition, given economic and financial conditions, Hoenig did not believe that keeping constant the size of the Federal Reserve's holdings of longer-term securities at their current level was required to support a return to the Committee's policy objectives.