The U.S. Federal Reserve Board building in Washington, D.C.KAREN BLEIER
The Federal Reserve kept its key interest rate unchanged on Wednesday, which surprised no one. But if observers were looking for assurances that inflation was not yet a problem, despite signs of commodity-fuelled price increases in Europe and developing economies, they got them.
From the Fed's monetary policy statement: "Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward."
In other words, the Fed continues to look at core inflation, which strips out volatile food and energy items and gives a smoother picture of the inflationary trend. Earlier this week, the head of the European Central Bank gave a far different impression, highlighting increases in headline inflation and suggesting that it could raise interest rates as a result.
The Fed also said in its statement that the economic recovery isn't sufficient to shift its policy on stimulation, and it is sticking with its plan to buy $600-billion (U.S.) of U.S. Treasuries. It said that the economic expansion "is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions."
Within 15 minutes of the release of the statement, major indexes had hardly budged. The Dow Jones industrial average, up 25.4 points before the release, was up 19.2 points afterward. Yields on the 10-year and 2-year Treasuries were also fairly steady.
David Berman