Chicago’s Evans dissents in favor of easing By Greg Robb, MarketWatch WASHINGTON (MarketWatch) — The Federal Reserve took a breaker on Wednesday, holding policy steady after a flurry of activity earlier in the fall. The decision leaves the Fed’s key interest rate at an historic low range of 0% to 0.25%, where it has been since December 2008. Attention now turns to the release of the central bank’s updated economic forecasts at 2 p.m. Eastern. Shortly after that, Fed Chairman Ben Bernanke will hold a press conference. The Fed repeated its intention to hold rates close to zero until mid-2013. The Fed said that growth had strengthened somewhat in the third quarter but that “significant downside risks” remain. Read text of decision. Charles Evans, the president of the Chicago Fed, was the lone dissenter. He favored more easing. There was little market reaction to the statement. All signs point to continued weakness in labor markets, the Fed said. The Fed “continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually,” the statement said. The Fed was sanguine about the price outlook, saying that “inflation appears to have moderated since earlier this year” and will settle over coming quarters into the central bank’s informal target range near 2%. Click to Play G-20 meets amid Greek crisis Costas Paris reports from the G-20 Meeting in Cannes, France, where Greece's decision to hold a national referendum on the recent bailout deal is the focus of discussions. Economic data in the last month has generally surprised to the upside. The Fed decided to continue its “Twist” program of shifting $400 billion in its bond portfolio toward longer maturities and continue reinvesting maturing principal payments into mortgage-backed securities. The government reported that gross domestic product expanded at a 2.5% rate in the third quarter, the fastest pace in a year. While this has eased some concern that the economy might fall into recession, economists are quick to note that this is too slow to bring down the high unemployment rate. The labor market has stubbornly refused to improve this year. The unemployment rate has been stuck near 9% since April 2009. Analysts said the Fed has been focused on how to improve its communication with financial markets. The central bank wants to convince investors that it is in no hurry to raise interest rates. A number of options are on the table, including more information on what would trigger a rate hike. Today’s pause by the Fed comes after two eventful meetings. In September, the Fed implemented Operation Twist designed to drive down long-term interest rates by purchasing $400 billion worth of longer-dated Treasurys and selling short-term securities. Many analysts expect the Fed to launch another round of quantitative easing next year especially if the economy fails to recover. The Fed may focus its purchases on mortgage-backed securities, as was advocated by one of its governors, Daniel Tarullo, last month. The next FOMC meeting is set for Dec. 13. Greg Robb is a senior reporter for MarketWatch in Washington.

Source