96-221 , the Monetary Control Act of 1980. Henceforth, it was to be made a "penalty" rate for those banks who chose to borrow from the Federal Reserve to meet temporary reserve deficiencies as opposed to borrowing in the federal funds market (the "penalty" aspect of the discount rate comes from the fact that it is set above the target for federal funds). Reference to the available financial data may show rates in the federal funds market that vary somewhat from the target in response to shifts in market conditions. To do this, the federal funds target was reduced from 5½% in March 2001 to 1% in June 2003. It remained at 1% for a year. To ease these conditions, the Board of Governors on August 17, 2007, reduced the discount rate for primary credit to 5¾%. During the second quarter, growth was also positive and at an annualized rate of 2.8%. Job losses since the employment peak in December 2007 are some 5.1 million. They now stand at a range of 0% to ¼% and ½%, respectively. However, as the magnitude and international scope of the credit crisis became apparent and energy and other commodity prices began to fall, the target was lowered and the Fed undertook a number of new and innovative measures to shore up the financial system and contain the economic contraction. During March 2008, the total reserves of depository institutions were $44.3 billion, of which $41.3 billion were required. The next scheduled meeting of the FOMC is June 23-24, 2009.
The Federal Open Market Committee (FOMC) decided at its scheduled meeting, held on April 29, 2009, to leave unchanged the target rate for federal funds, which is now at a range from 0% to ¼%. In doing so, it took notice of its previous decision to add up to $1.75 trillion to the reserves of depository institutions by purchasing agency mortgage-backed securities ($1.25 trillion), agency debt ($200 billion), and Treasury securities ($300 billion). It also repeated that other measures had been adopted to facilitate the flow of credit to households and small businesses. In making its decision, the FOMC stressed that while the pace of the economic contraction appears to have slowed somewhat, the following factors remain: (1) a continuing pattern of job losses, lower household wealth, and tight credit; (2) the decline in global demand is increasing; and (3) while inflationary pressures remain subdued, they may be inconsistent with longer term growth and price stability (meaning that the United States may be facing deflation in the future). Nevertheless, a gradual recovery of sustainable economic growth in the context of price stability is expected to begin, given Fed action to stabilize financial markets and institutions and the monetary and fiscal stimulus now in place. The FOMC pledged to employ all available tools to promote the resumption of sustainable economic growth in a stable price environment. It expects that this will require an exceptionally low federal funds target for some time. The Board of Governors also decided to keep unchanged the discount rate for primary credit at ½%. The next scheduled meeting of the FOMC is set for June 23-24, 2009. This report will be updated as events warrant.