The Fed Stands Pat

The Federal Reserve did something yesterday that is probably good news for investors: nothing. For now, at least, the Fed plans to keep interest rates at near-zero levels and to continue buying long-term bonds as part of Operation Twist, but it does not plan to embark on another round of quantitative easing to help buoy the economy. The economy, the normally pessimistic Ben Bernanke seemed to be saying, is finally doing OK all on its own.

The Fed has a dual mandate of bolstering employment and restraining inflation, so it was interesting to see what they had to say about the recent increase in gas prices. Rising gasoline prices can help fuel inflation because it's so important to so many corners of the economy, but the Fed thinks the effects will be short-lived. "The recent increase in oil and gasoline prices will push up inflation temporarily," the report said, "but the FOMC [Fed Open Market Committee] anticipates that subsequently inflation will run at or below the rate it judges most consistent with its dual mandate."

The economy itself generated some positive news yesterday as well. Retail sales were up strongly in February, by 1.1 percent over the same month a year earlier. Not only that, but sales figures from January were revised upward, from the 0.4 percent initially reported to a healthier 0.6 percent.