WEDNESDAY, APRIL 7, 2010
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Economy & Business A13
Fed minutes clarify that rate increases aren’t tied to timeline
Central bank attempting
to keep options open, depending on economy
by Neil Irwin
Any decision by the Federal
Reserve to end its policy of ultra- low interest rates would come in response to economic data and not according to any predeter- mined schedule, leaders of the central bank made clear in min- utes of their last meeting re- leased Tuesday. For more than a year, the Fed has said it expects to leave its tar- get interest rate “exceptionally low” for “an extended period.” But the length of that extended period has been up for debate, and some policymakers have said it means that rates will stay near zero for at least six more months.
With the release of minutes of
their March 16 meeting, Fed offi- cials offered more clarity, essen- tially stating that there is no fixed timetable. Anumber of central bank lead- ers said their expectation of con- tinued low rates “was explicitly contingent on the evolution of the economy rather than on the passage of any fixed amount of calendar time,” the minutes said. The new language is an at-
New proposal for consumer agency from top Republican
by Brady Dennis
Staff members for Sen. Rich- ard C. Shelby (Ala.), the ranking Republican on the Senate bank- ing committee, sent a proposal to their Democratic counterparts last week that would create an independent consumer financial protection agency, according to sources familiar with the negoti- ations. The offer marks a significant
reversal from the position that Shelby and other Republicans have long held: that such an agency would clash with a sep- arate set of regulators charged with overseeing the health of fi- nancial firms. The proposal in- cludes limits on the consumer agency’s authority, including a commission of regulators that could serve as a check on rules put forth by the agency, accord- ing to one source. The sources spoke on the condition of ano- nymity because they were not au- thorized to discuss the matter publicly. It is unclear what other con- cessions Shelby might be seeking in return for his support of a new consumer agency, and aides to Shelby and committee Chairman Christopher J. Dodd (D-Conn.) declined to speak in detail about the ongoing discussions. “We continue to discuss differ- ent approaches” on consumer protection, said Shelby spokes- man Jonathan Graffeo. “As Sena- tor Shelby has said, his primary concern is not the agency’s form or location, but a meaningful role for safety and soundness regulators.” Shelby’s proposal marks the
latest in a months-long series of negotiations between lawmakers trying to arrive at a bipartisan deal. Dodd and Shelby have twice broken off talks after reaching impasses. Dodd eventually sought out another Republican partner, freshman Sen. Bob Corker (Tenn.). They hammered out some compromises, but Dodd decided to forge ahead alone before they reached a final deal.
Dodd’s committee passed his
1,336-page draft bill on a party- line vote last month. The House passed its financial regulatory overhaul bill in December. The consumer protection
agency, while the most high-pro- file element of the debate, is only one part of Dodd’s wide-ranging legislation. Differences remain on a variety of other core issues, such as how best to oversee the vast derivatives market, what kind of supervisory duties the Federal Reserve should retain and how to ensure that taxpayers aren’t on the hook if financial firms fail in the future. Dodd’s bill is set to go to the
Senate floor this month after lawmakers return from a two- week recess. Both Dodd and Oba- ma administration officials have said that they hope to win con- gressional approval for the legis- lation before the midterm elec- tions this fall.
dennisb@washpost.com
tempt by the central bank to keep its options open and em- phasize the conditionality of its future rate policy. Some officials have worried that by promising to keep rates low for an “extend- ed period,” the Fed is in a box, in that once the language changes, financial markets will view a rate increase as imminent. The new language from the
Fed aims to maintain the flexibil- ity to increase rates quite soon, if the economy takes off, or hold off
for a very long time if it lags. On the question of when the
Fed might raise its target short- term interest rate above its cur- rent range of zero to 0.25 per- cent, the new minutes suggest that Fed leaders continue to see plenty of signs of weakness in the economy that would justify leav- ing rates low. While meeting participants
“saw incoming information as broadly consistent with contin- ued strengthening of economic
activity, they also highlighted a variety of factors that would be likely to restrain the overall pace of recovery.” Those factors in- clude the end of fiscal stimulus programs and the fact that changes in business inventories will not contribute to economic growth the way they did late last year. Inflation fears, meanwhile, ap- peared to be minimal, as pol- icymakers “referred to a wide ar- ray of evidence as indicating that
underlying inflation trends re- mained subdued.” Some policymakers, according to the minutes, thought that the risks of starting rate hikes too early exceed those of waiting too long because the Fed could al- ways raise rates more aggressive- ly down the road if inflation be- came a problem, but would have less leeway to correct later if it increased rates too soon. The labor market continues to show signs of steady improve-
ment. The number of job open- ings dipped slightly in February, but maintained most of a large increase from January, suggest- ing that employers are on the verge of hiring, according to a Labor Department survey re- leased Tuesday.
And in promising news, the number of layoffs fell to 1.82mil- lion, the lowest level since Febru- ary 2007, well before the begin- ning of the recession.
irwinn@washpost.com
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