The U.S. Federal Open Market Committee decided today to keep its target for the federal funds rate at 1%. In its accompanying policy statement the Fed indicated that rates will remain at rock bottom for some time.

“With inflation quite low and resource use slack, the committee believes that it can be patient in removing its policy accommodation,” the Fed said.

The Fed said that it still believes that low rates and productivity growth are supporting economic activity. “The evidence accumulated over the inter-meeting period indicates that output is continuing to expand at a solid pace,” it said.

It acknowledged that jobs have yet to materialize. “Although job losses have slowed, new hiring has lagged,” it said, also noting that inflation is not a worry. “Increases in core consumer prices are muted and expected to remain low.”

“The committee perceives the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation,” it concluded.

Some economists think the Fed will hold off on rate hikes until 2005, others say increases could start this summer.

Bank of Montreal says that the statement contained a slightly weaker characterization of recent labour market developments that likely reflected the impact of the disappointing February payroll employment report. And, it softened its characterization of overall output.

“Today’s Fed statement reinforces the impression that the current very stimulative conditions are unlikely to be altered imminently,” BMO concludes. “If anything, an eventual tightening has been pushed marginally into the future. In the wake of some of the recent weaker-than-expected data, we have pushed back the first Fed tightening to November this year from a previous forecast of August. The slightly less upbeat statement by the Fed seems consistent with this revised view of stimulative conditions being retained slightly longer.”

BMO Nesbitt Burns says the Fed statement revealed very subtle differences from previous statements, “but it sounds a bit more discouraged than earlier. The Fed, like everyone else, expected the payroll numbers to have popped by now,” it says.

“Don’t expect the Fed to raise rates anytime before the election unless we get an unexpected multi-month pop in payrolls and a rise in inflation. Even a rate hike in November or December seems to be a long shot now,” it says.

TD Ban says that it is not changing its call for an August tightening move. It says that it shares the Fed’s view that the question is “when” employment growth will rebound — not “if”.