Today was far from a normal Fed-day as the FOMC announcement followed a GDP release that was negative for the first time in 13 consecutive quarters. Some things are the same and some things are different. As you have grown to expect at each and every single FOMC meeting, the Federal Reserve has no change on interest rates. Arguably, there are not even any interest rates to speak of but that is another matter. What investors and the public are most interested in right now is the Fed’s language around quantitative easing measures and how long the policy of no-rate or low-rates will continue.
We also got the usual protest vote (1-11), but this was with Esther L. George rather than by Jeffrey Lacker. George was said to be concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.
This two-day meeting was the first FOMC meeting of 2013 and was also the first meeting of the second Obama administration. There will not be another FOMC meeting scheduled until March 19 to 20, and that March meeting was listed as being the first meeting of 2013 were Ben Bernanke and Fed presidents will issue their summary of economic projections ahead.
Here are some takeaways from the official FOMC statement after Wednesday’s disappointing GDP release.
The economic activity was called on pause due to weather and other factors. Unemployment remains elevated while household spending and business investment advanced. Housing was shown as improving and inflation was noted as being under the Fed’s 2% target. The expectation is that the economy will grow at a moderate pace with policy accommodation. The FOMC expects that unemployment will decline gradually with an accommodative policy.
One key issue that will help global investors feel a tad batter is that the FOMC statement also pointed out that international financial strains have eased, although this was called a current risk. The highly accommodative stance is said to be appropriate for a considerable time. The Fed also said that it will look at other factors beyond inflation and unemployment.
Here is the note on QE-infinity:
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.
Now that we are in 2013, the end date of 2014 or even 2015 is getting closer and closer.